Small Business and Taxes: Depreciating Office Equipment

| November 4, 2009

As a home based or small business owner, is very important to take advantage of every tax benefit the federal government has to offer. Whether your office is located in your home or outside of the house, you can realize tax credits by depreciating your office equipment.

The federal government has specific rules and regulations that must be adhered to when taking the deductions. Fortunately, they have pretty clear directions and documents on their website to help explain what to do. Here are a few tips on how to depreciate your business office equipment.

  1. Take an inventory of your business equipment. The federal government classifies business equipment into three different categories. They differentiate between furniture and equipment, property bought for business use and finally personal property that was converted to business use. There’s a slightly different way to depreciate equipment in each of the three categories. It is easier to apply the depreciation formula after you’ve categorized your property.
  2. Check to see if the equipment falls under the five or seven-year depreciation schedule. In addition to categorizing your equipment, you must determine which depreciation schedule to use. Certain equipment such as fax machines typewriters, calculators, computers and the like are depreciated over a five-year period. Other office equipment such as furniture, desks and bookshelves are depreciated over a seven-year period. This might sound overwhelming but fortunately the Internal Revenue Service has a very detailed document that outlines the 5W’s and H (who what, where, why and how) to depreciate your office property. Take a look at publication 946 entitled How to Depreciate Property.
  1. Now that you have all of your business office equipment classified, it’s time to pull out your own meticulously kept documentation. As a prudent business owner, you have kept perfect documentation throughout the year of each office related purchase (If you didn’t, now is a great time to start keeping organized records). Go through your files to find each receipt. If you happen to be missing one or two receipt, try your best to either duplicate them or show proof of purchase date and price. The receipts are important in the event of an IRS audit. You want to be able to document all of your deductions and depreciation.
  1. Obtain a copy of the appropriate tax forms for filing. If you don’t have tax forms mailed to you by the IRS, you can either go to the IRS website to download the appropriate form or buy tax preparation software, which comes with all of the necessary forms. It goes without saying that you will need to itemize our deductions using the long form (Form 1040 EZ is not for you).

If the entire tax and depreciation process overwhelms you, hire a competent accountant. It’s not only worth the peace of mind; it can help prevent an IRS tax audit.

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Category: Taxes

About the Author ()

Felicia A. Williams is a wife, mother, freelance writer and owner of Tidbits About Money.

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