Accelerated depreciation

This sad-sounding accounting term is actually not that sad at all. It actually refers to the allocation of higher amounts of depreciation in earlier years of owning a fixed asset and and lower amounts in later years or it’s “golden years” if you will.

Accelerated Depreciation in plain English:

Let’s say you purchase a bunch of computers for your new business. You plan to use those computers for the foreseeable future or as long as they work, and you also know that as it goes with technology and most other things in the world, the computer will get lower in value as it gets older.

Accelerated depreciation allows you to write off more of the cost of the computer in early years, which is great for startups because the early years are likely when you’re the most strapped for cash. Then as the computer depreciates in value, you will then write off less and less over time as you use the computer. You’re still writing off the same amount, it’s just that you’re taking a bigger chunk of the cost out of your taxable income in the beginning. Essentially, you’re just delaying the amount you’ll owe on your net income to a later date, but sometimes that can be a great thing, especially when it comes to the high overhead you encounter when starting a business.

 

How to use Accelerated Depreciation in a sentence and sound knowledgeable:

I’m thinking of buying a boat as an office, and I’ll write it off on my taxes using accelerated depreciation. But what happens if it sinks? Oh crap.

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