If you’re managing a small business, you need to fully your finances from your balance sheets to your income statements. If your accounting is only of the basic level, you will need accounting professional to help you to have at least the basic knowledge like how to calculate depreciation and understand better your business finances.
Before you understand calculating and reporting depreciation expenses from your balance sheets to your income statement, you need to understand what depreciation is. In a simple explanation, it is a term used to describe value of assets like building and building improvement machinery, tool, equipments like computers and fixtures. All of these assets’ value depreciates overtime and the value reduced is called non-cash expense. There are two reasons for depreciating assets. This includes wear and tear wherein for example a company’s car value decreases because of mileage, wear on parts and other factors related to its use and functionality. Another reason is assets obsolescence. An asset that needs to be replaced by a newer model is depreciated by means of obsolescence. Examples of this are purchasing a new computer model to replace an old computer.
Having a business, you are entitled to enjoy reduced taxable business income by entering depreciation expenses in your income tax return. Your accountant will not only explain to you those principles to use in calculating and reporting your depreciation expenses but also how to calculate depreciation based on the useful life of your business assets and the different classification of business assets.
However, before you can be entitled to a depreciation tax bonus, you need to have your assets assessed for tax depreciation and need to have a depreciation schedule to ensure you’re maximizing the cash benefits from your investments as well as from your deprecation tax incentives or bonuses. You need to discuss with a tax advisor what is depreciation schedule and how your business can claim for various deductibles you’re entitled to. Your tax advisor should be able to explain which types of depreciating calculation can be used on your assets like office building, equipments and fixtures. He can either advise you on how to calculate depreciation using Diminishing or Prime Cost methods. Before you can be provided with a tax depreciation schedule, you need to enlist a tax depreciation team who will visit your site and carry out property inspections and identify eligible depreciated assets, and prepare records and documents necessary for filing for claims.
As a small investor, knowing and understanding the benefits of tax depreciation can help you maximize cash returns from your property investments and a depreciation team by your side will ensure you’ll arrive at it with ease.