When operating a business, it is vital for a business owner to thoroughly document their business expenses. Keeping thorough records of your business expenses will make it easier for you to deduct your business expenses. However, it could be difficult to determine your available business expenses if you are unfamiliar with federal, state, and local tax regulations. If you need assistance determining business expenses for your company, you should consult with an experienced California business services accountant as soon as possible. The Cook CPA Group recognizes that operating a company while keeping up with tax regulations could be challenging, and we are here to help resolve your concerns. We are here to explain what business expenses should be depreciated in California.
How Depreciation Works for Business Expenses in CA
Depreciation is a type of accounting method used to assess the loss of value for assets owned by a person or entity. Specifically, a taxpayer could spread out the cost of an asset over the period of time it is expected to be used. As a result, the taxpayer could deduct a small portion of the cost of the asset each year instead of taking the full tax deduction when the asset was purchased.
The ultimate goal for depreciation of business expenses is that the taxpayer lowers their tax bill by matching the cost of an asset to the income earned by using the asset. Note, however, that a business cannot depreciate all the assets it owns.
Certain assets are depreciable because they are often expensive purchases for a business that will eventually become useless as they age. Offering tax incentives for a depreciable asset will assist a taxpayer and make it easier for the taxpayer to replace the asset at the end of its life.
When determining what assets are depreciable, a taxpayer should understand that all depreciable assets are considered fixed assets. However, every fixed asset is not subject to depreciation. In order for an asset to be considered depreciable, the asset must lose value as time goes on. The following is a list of assets that are not depreciable:
- Leased property
- Cash and receivables
- Collectibles like baseball cards or art
You should also be aware that personal property and assets that will be used for investment cannot be claimed as depreciable assets.
To learn more about what qualifies as a depreciable asset and how to calculate depreciation, you should continue reading and contact an experienced Roseville tax preparation and planning accountant today.
What Business Expenses Qualify as Depreciable Assets in CA?
There are a few factors that must be considered in order to classify a business asset as depreciable. The Internal Revenue Service examines the following factors:
- Whether the taxpayer seeking the depreciation is the owner of the asset
- Whether the taxpayer uses the asset for their business or uses it to generate income
- The asset has a useful life of at least one year
When using this criterion, the following business expenses could be considered depreciable:
- Vehicles used for business purposes
- Office buildings
- Manufacturing machinery
- Buildings rented out by a company
- Equipment needed to operate the business, such as laptops
This is not an exhaustive list. There are other business expenses not listed here that could be considered for small business accounting.
How to Depreciate Business Expenses in CA
There are multiple accounting methods that could be used to depreciate an asset. For example, a taxpayer could use the straight-line method of depreciation. Under this method, the taxpayer would depreciate their business asset evenly across multiple years. To determine how much the asset could be depreciated, the taxpayer must subtract the business asset’s salvage value from the cost of the asset and divide that number by the number of useful years of the asset.
A taxpayer could also choose to use the accelerated method of depreciation. This method permits a business owner to take a large chunk of the depreciation value in the first few years of the asset’s useful life and a smaller amount in the future. This is a popular form of depreciation for owners of small businesses.
Business expenses could also be depreciated using the Section 179 deduction. Under this method, the total cost of the asset could be deducted in the same year the asset was purchased. This could only be used for a maximum of $25,000 in deductions.
Depreciating business expenses is often a tedious task for business owners as they are concerned about claiming the wrong deductions. Claiming an inaccurate deduction could result in a number of issues that a taxpayer would seek to avoid. Fortunately, the Cook CPA Group is here to help determine which of your business assets could be depreciated. Our firm has extensive experience providing accounting services to businesses in California, and we would be pleased to offer you our services.
Consult with Our Experienced California Accountants for Depreciable Business Expenses
If you are unsure of the business expenses that are depreciable for your company, you should work with an experienced Sacramento business consulting accountant today. The Cook CPA Group has years of experience helping our clients manage depreciable business expenses, and we are here to help you explore your options for depreciable assets. Not only could we help manage depreciable assets, but we also have experience in many other areas concerning tax regulations. If you would like to schedule a free consultation to discuss your tax liability, you should call the Cook CPA Group at (916) 432-2218. You may also schedule a free consultation using our online submission form.