The key to better tax prep? Understanding depreciation

Depreciation is a key concept in tax prep, allowing businesses and individuals to recover the cost of assets over their useful life. It directly impacts taxable income by maximizing deductions and ensuring compliance with tax laws. Understanding depreciation basics helps you provide accurate advice, avoid errors that may trigger audits and enhance your value to clients by supporting effective tax planning strategies.

Below, you’ll find a few of the top questions from a recent webinar on the topic and their accompanying answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.   

Q: Can you use straight-line depreciation?

A: Yes, you can. However, it’s recommended to evaluate which method works best for your client. For instance, if your client has higher profits, they may benefit from using an alternative depreciation method.

Q: Can you use GDS for some assets and ADS for others?

A: In some cases, yes. However, there are restrictions, especially with listed property. Your client may prefer a longer depreciation period to offset profit.

Q: To depreciate a car, must it be in the business name?

A: No, the car does not need to be titled in the business name. However, you must maintain records to determine the business-use percentage.

Q: If listed property drops below 50% business use, do you switch to ADS?

A: Yes. Once the business use of the property falls below 50%, ADS must be used in subsequent years [§280F(b)(2)(A)].