Roscoe_Video
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Apr 8, 2008, 10:00 PM
Post #2 of 15
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Re: [Brackish] Equipment depreciation for income tax: How to?
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Depreciation vs expensing an item.
Expense - is a charge against revenue in the current year.
Depreciation - is a charge against income over multi years
The test of expense vs depreciation, is the longevity of the item. eg we wouldn't expect disposable items like pens and paper to last more than an one income year, so they can be expensed in the current income year. It's the idea of matching expensing the item against the amount of income that was received during that period.
Equipment lasts more than one taxable year, so it it expensed via depreciation across more than one year. How many years depends upon the nature of the item. Cars tend to last longer than cameras. Your federal tax system will have a table listing how much you are eligible to bring to account each year. Usually it is a percentage, and then depends on whether you are able to use straight line ( eg 33% of purchase price per year ) or diminishing value (33% of book value per year, so the value never really reaches $0.00). They usually don't care which so long as you are consistent.
So you can't depreciate an item in one year, you're expensing it in that case.
to work out how much depn to expense
$1000 of equipment with a life of say 4 yrs
Yr 1 $1000 x 25% = $250 depn Book value 1000-250=750
Yr 2 $1000 x 25% = $250 depn Book value 750-250=500
etc
to end oy year 4 Book value nil.
Equipment is usually recorded separately to motor vehicles in your Fixed asset register.
I would suggest that if you are unclear on depreciation and how it affects your profit in any year, that you make sure someone is reviewing your accounts before you file them. You wouldn't expect a CPA to shoot a multi-camera service without a glitch first time up, just like he wouldn't expect you to get your accounts or tax return spot the first time up.
Ross Herewini
Sydney
(This post was edited by Roscoe_Video on Apr 8, 2008, 10:02 PM)
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