3 Simple Ways to Calculate Depreciation

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Your business needs assets to run, and all assets depreciate. Therefore, properly handling your taxes requires understanding how to calculate depreciation.

Depreciation is the value an asset loses over time. Understanding the amount of depreciation is the key to properly running your business.

Information Needed to Calculate Depreciation

To calculate deprecation, you must know the following:

  • The asset’s useful life
  • The asset’s salvage value
  • The cost of the asset

To calculate depreciation, subtract the salvage value from the acquisition cost and then divide that by the number of useful years.

This is the straight-line deprecation.

Other Deprecation Methods

Two other depreciation methods include:

  • Declining balance – This method accounts for the early deprecation most assets experience early in life.
  • The sum of the year’s digits – This method uses the asset’s expected life plus the digits for each year it’s expected to last. For example, if it lasts five years, you would add 5 + 4 + 3 + 2 +1.

Final Thoughts

The easiest depreciation method and the most common is the straight-line deprecation method. The other methods may be used in certain industries, though.

Contact me today to learn which deprecation methods work best for your company.

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