Amanda Howard, Esq.
Accelerated depreciation is a tax accounting strategy that helps businesses get their money back from buying assets more quickly than traditional depreciation methods. Normally, when businesses buy things, they can’t get all the money back quickly. But with accelerated depreciation, businesses can get more money back sooner, which means they don’t have to pay as much tax. It’s like getting a discount on taxes right away.
Depreciation is how we spread out the cost of stuff we buy over time for taxes. It’s like saying, “This thing we bought will be used for many years, so let’s not count all the money we spent on it this year.” Usually, we spread the cost evenly over all the years thatthe thing will be useful.
But with accelerated depreciation, we do things a bit differently. We say, “Let’s count more money in the first years when the thing is new and useful, and less money in the later years.” This way, businesses can get bigger discounts on their taxes at the beginning, which helps them save money and have more cash to use.
So, when businesses use accelerated depreciation, they can save money on taxes right away. This helps them have more money to use for other things. The way it works is that businesses count more money for taxes in the early years when things are new and useful, and less money in the later years. This way, they can have more tax savings and better cash flow at the start.
Next week, we will discuss the advantages and disadvantages of accelerated depreciation.
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