Capitalization Policies & Depreciation Explained: Essential Tips for Business Owners

Small Business Tax Savings Podcast

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Have you ever wondered how to maximize your tax deductions through depreciation without getting lost in complex accounting rules?

In this episode, Mike Jesowshek delves into the concept of depreciation, explaining its importance and application for small business owners. He covers the basics of depreciation, different methods available, and a little-known policy that simplifies the process for assets under a certain value. Mike provides insights into regular depreciation, bonus depreciation, and Section 179 expensing, while also highlighting the significance of having a capitalization policy in place. Additionally, he discusses the rules for when depreciation begins and the implications of selling depreciated assets.

[00:00 - 05:21] Introduction to Depreciation

• Mike Jesowshek introduces the topic of depreciation.
• He explains the basic concept of depreciation and its significance for small business owners.

[05:22 - 10:23] Types of Depreciable Assets

• Mike shares some details on what types of property can be depreciated, such as machinery, equipment, buildings, vehicles, etc.
• How is it that land cannot be depreciated?

[10:24 - 15:34] Depreciation Methods

• Mike shares an overview of regular depreciation, bonus depreciation, and Section 179 expenses.
• Bonus depreciation allows for a significant deduction in the first year, decreasing over time.
• Section 179 expensing permits a full deduction in the first year up to a specific limit.

[15:35 - 20:30] Example and Application

• Mike provides a detailed example of how different depreciation methods would apply to a computer purchase.
• He discusses the importance of consulting with a tax professional to determine the best method.

[20:31 - 25:42] Rules of Depreciation

• Rule 1: Must be in business to take depreciation deductions.
• Rule 2: Depreciation begins when an asset is placed in service.

Direct Quotes:

"Depreciation is essentially just taking the cost of an asset and spreading it out over time." - Mike Jesowshek, CPA

"Land cannot be depreciated, but buildings, equipment, vehicles, and furniture can." - Mike Jesowshek, CPA

"Bonus depreciation allows you to take a significant portion of the asset's cost in the first year, which can be very beneficial for small businesses." - Mike Jesowshek, CPA

"Every business owner should have a capitalization policy in place to simplify the process of expensing smaller asset purchases." - Mike Jesowshek, CPA

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Podcast Host: Mike Jesowshek, CPA - Founder and Host of Small Business Tax Savings Podcast

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