Business Deductions

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11 Most Overlooked Tax Deductions

Updated for 2011

Small Business Deductions: Depreciation

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Important Points to Keep in Mind When Depreciating Property

1) Startup businesses:

Because accelerated depreciation gives you higher deductions in the the earlier years of the asset's recovery period than straight-line depreciation, you will cut your tax bill during those years.

This is good because you may need the extra cash to fund operations until revenues build up.

However, if you expect losses in the early years, you may not be able to take advantage of the higher deductions.

Rather than wasting the extra deduction that accelerated deprecation provides over straight-line depreciation in the earlier years, consider using straight-line deprecation.

Straight-line depreciation will provide higher deductions in the later years than accelerated depreciation. Consequently, when business income rises the higher deductions will be worth more, from a tax standpoint.

2) Partial business use:

When using equipment less than 100% for business you must allocate depreciation to business use. You must be able to distinguish between business and personal use in case you're audited. Keep good records.

3) You must reduce basis:

Whether you deduct depreciation each year or fail to deduct it, you must still reduce the basis of depreciable property each year by the amount of depreciation you would have been allowed to deduct.

4) Alternative minimum tax (AMT):

You may have to file Form 6251 if you use accelerated depreciation rather than straight-line depreciation.

However, there is no depreciation adjustment for the AMT if:

Next:

Depreciation: Converting Personal Use Property to Business Use; How Did You Acquire the Property? Transferring Property Into a Corporation

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