Posts made in February, 2015

Depreciation As A Tax Deduction Comments Off on Depreciation As A Tax Deduction

Depreciation As A Tax Deduction

When claiming an asset as a tax deduction, it must be depreciated over a number of years. But how do you know how much depreciation to claim each year? The following article will give you a rough guide to claiming depreciation as a tax deduction An asset may be depreciated individually using either the prime cost or diminishing value method. Once a depreciation method has been chosen for the asset, the same method must continue to be used for the remainder of the assets life. Assets may also be grouped into asset pools (subject to certain rules) and the pool will be depreciated as a whole.   Methods for Depreciating Assets Individually   Prime Cost The prime cost method, also referred to as the straight line method, will depreciate an asset by equal amounts each year. To calculate how much depreciation to claim each year, divide the cost of the asset by its effective life.  For example, an asset costing $5,000 with an effective life of five years will be depreciated at $1,000 each year ($5,000 / 5yrs). Please note: To depreciate software you must use the prime cost method of depreciation.   Diminishing value The diminishing value method calculates depreciation based on a percentage, and results in more...

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