Depreciation or Section 179 - Which is best for me?

Introduction

This article is not able to meet the level of knowledge of a CPA on the issue of Section 179 and depreciation, this is an article to simplify the concepts for an entrepreneur who has no interest in pursuing a degree of bookkeeping or accounting knowledge in any way, shape or form. There are those who will say that the illustration I will use here is crude, to those who say, I say, thank you. And since this is an article for the average entrepreneur, I'm not going to discuss minimum or any of the information that is preprinted on tax forms, and for their tax preparer to explain later.

Depreciation

Depreciation is the possible reduction in value of an asset over a fixed number of years depending on the type of asset is. The great powers that be at the IRS have determined the lifetime of all possible types of fixed assets and, unfortunately, we do not have a say in the matter whatsoever. For computers we get three years of useful life, the vehicles you get five, maybe seven, it is considered a vehicle equipment, 27.5 years for buildings (there's actually a funny story about how they settled on a strange for so many buildings, but only CPA laughing so we'll just jump.)

Using a computer as our example we have 3 years of useful life of your computer. So our $ 2000 Dell will fall in value over that period of three years based on its cost and what will be worth in three years. Suppose that the computer will be worth $ 0, as is generally exceeded three months after purchase anyway. So for the next 3 years we are reducing the value of that computer for $ 667.00/year. At the end of the third year, the value of our computer is now at $ 0, but is still working as efficiently as it did from day one.

We can keep in working condition until he died, or what a lot of companies do is to donate computers to a nonprofit organization and deduct the estimated value of that computer as a charitable deduction, then buy a new one and start the process all over again. Get it?

Section 179

Let's face it, accountants love any form or phrase that starts with the word 'section' and has a number in it. Love on the CPA section 179 intangible, I know, accountants really need a hobby. Stay with me here. If we imagine that the computer the same shelf life as a pie cut into three pieces, with depreciation, take a piece of that pie each year. Using Section 179, we take all three pieces the first year of ownership of the asset (or put into use).

Now, because we would not just write off everything with a section 179? The theme of the gains Unrecaptured little addressed. In other words, if we take all three years at a time we have to keep that object to all three of those years to avoid paying taxes on the depreciation we took in the first year.

The analogy

Ok here it is. Take this cake is that the useful life of an asset and is Section 179 (eat all three pieces per hour). This means that it can be disposed in less than three years, so that means that's right you're not going to have to use the bathroom for three years, because you can not deal with that asset during its useful life! And if you decide that you must dispose of the asset, say 18 months to have possessed, you are going to have to (take out) the remaining 18 months of depreciation you have and give to the IRS.

Conclusion

The good news is that Section 179 is a good plan for businesses that need more than a deduction for the first year and that the big ticket items are rarely sold before their useful life is over. You just need to understand, as a company, what it means for you to choose this option. And hopefully, you were not too offended the analogy.