Depreciation Planning for Tax Savings
Depreciation Planning for Tax Savings Depreciation is a powerful tax tool that allows businesses to recover the cost of certain assets over time. While many business owners view it as a standard accounting practice, strategic depreciation planning can significantly reduce taxable income and improve cash flow. Understanding how depreciation works—and how to plan for it—can lead to meaningful tax savings year after year. What Is Depreciation? Depreciation is the gradual deduction of an asset’s cost over its useful life. Instead of deducting the full cost of a large purchase, such as machinery or vehicles, in the year it was bought, businesses spread the deduction over several years. This method aligns the expense with the revenue it helps generate, offering a more accurate view of financial performance. Assets eligible for depreciation typically include buildings, office furniture, equipment, vehicles, and certain technology. The land is not depreciable, as it doesn’t wear out or get use...