How can Tax Depreciation help your business?
Posted by MCG Quantity Surveyors on March 1st, 2017
When it comes to owning a business, some expenses like payroll, office supplies, and inventory purchased for resale, all of these provide a short-term business benefit. Whereas, purchases like buildings, furniture, computers, equipment and others last a lot longer. In case you didn’t know, tax depreciation is another way to spread out all of your long-term expenses over a number of years on your financial statements.
One minor disadvantage is that, depreciating all your assets takes a little more time and effort especially in terms of record keeping, but you should know that doing this will help you understand better your profitability, and help you avoid any misleading losses in terms of accounting on your income statement.
Unless you generally follow the accounting principles that are accepted, you will not need to depreciate any of your assets for accounting records financially. But, keep in mind that businesses do need to depreciate from time to time for the sole purpose of taxes, especially when your purchased assets exceed a certain threshold.
Sometimes, you may feel the need to tax depreciate even when you do not need to, but that is only because you may have immediately expensed large purchases, these can have a negative effect on your income statement. If the asset cost is bigger, it can possibly create a loss for that year, and to make matters worse, it can take up to almost a full month or even a year for all the equipment you have in your office to start generating revenue for your business.
Making your income appear flawless is not just about being consistent all the time, but it will also mean that depreciating your assets will also give you a better direction on how much it will actually cost to run a smooth sailing business and sell products effortlessly. If you start to expense on the assets for operating right away, you will not get to see that the expenses listed in the subsequent month once that equipment starts to produce or support revenue.
This inflates your income artificially for those months subsequently, and if you fail to pay close attention, this can cause you to miscalculate the profit margin from your sales. If you spread the expenses in terms of asset purchases evenly, tax depreciation will give you a better sense of your profit monthly.
If you find that these things are too hard for you to get the hang of, you can try hiring professionals to help you do all of this. One who would be highly recommended are the MCG Quantity surveyors. These guys do their best to help property investors like you to gain more money, and at the same time have a steady cash flow that will help them reach financial freedom. If you want to reach the same thing, then you should definitely try them out.
