Accelerated depreciation is a way to write off the cost of a business asset faster than the regular straight-line method. Instead of spreading the deduction evenly over the asset’s useful life, you take larger deductions in the earlier years and smaller ones later.
Claiming bonus depreciation may increase your deduction now but could reduce deductions in future years or increase taxes when the property is sold.
Why Use It?
- Bigger tax breaks sooner: You reduce your taxable income more in the first few years.
- Helps with cash flow: More deductions early on can mean more money saved on taxes when you need it most.
Common Methods of Accelerated Depreciation
- MACRS (Modified Accelerated Cost Recovery System) – This is the most common method used in the U.S. for tax purposes.
- Double Declining Balance – Depreciates the asset at twice the straight-line rate.
- Section 179 Deduction – Lets you deduct the full cost of qualifying assets in the year you buy them (up to a limit).
- Bonus Depreciation – Allows an additional deduction in the first year for certain new or used assets. TaxSlayer automatically applies bonus depreciation when it is available, unless you choose to opt out. During the depreciation section, you’ll see an option to turn off bonus depreciation if you do not want to claim it.
TaxSlayer calculates depreciation based on the information you enter, but it’s your responsibility to decide whether to keep or remove bonus depreciation.
Example
Let’s say you buy a computer for your business for $1,000.
- Straight-line depreciation over 5 years: $200 per year.
- Accelerated depreciation might let you deduct $400 in year 1, $300 in year 2, and smaller amounts in later years.