The end of the year is fast approaching and it’s time to lock in the services, solutions and hardware that will help move your business forward in 2017. We always encourage our Future Link IT clients to plan ahead. If you order your hardware now – before the rush – you can get a leg up on the competition and save money on your purchases by taking advantage of a Federal tax incentive known as accelerated depreciation.
Accelerated depreciation – the short version. Accelerated depreciation is any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years of the life of an asset.
Accelerated depreciation – the slightly longer version. The well-known “straight-line” depreciation method spreads depreciation evenly over the life of an asset. Accelerated depreciation, on the other hand, allows for the deduction of higher expenses in the first years after purchase of an asset and lower expenses as the asset ages.
Accelerated depreciation is advantageous because an asset is most heavily used when it’s new. As an asset (or piece of hardware) ages, it is not used as heavily, and may be phased out for newer assets.
Accelerated depreciation – key benefits:
- It’s a tax shield. Companies with a large tax burden can benefit even if it reduces the income shown on financial statements.
- It’s useful for writing off equipment that might be replaced – due to obsolescence – before the end of its full life cycle due (e.g. computers and other hardware).
- It can be used to reduce costs during a company’s startup years. By increasing the deductions taken during the first few years, the company’s overall tax debt is reduced at precisely the time funds are needed for other purposes.
Unless you’re an accountant, taxes are probably not your favorite topic. But, understanding your options can help you save. There is still time to consult your tax professional. Then, call us so we can help you plan and manage your hardware purchases.
Thanks to Investopedia for helping to make accelerated depreciation understandable!