depreciation

[joeblow]

What exactly is depreciation? How does it help me? I know there are tax advantages, but that isn't the only reason for it.

[Phil Nilsson]

The allocation of the cost of an asset over a period of time for accounting and tax purposes. A decline in the value of a property due to general wear and tear or obsolescence; opposite of appreciation.

[joeblow]

Thanks Phil,

That sounds simple enough, but how does it help me?

[MGO]

Depreciation is the way in which you write-off the cost of your equipment.

Some things can be written-off completely during the year you purchased it........like gasoline, plants that you install, trash bags, etc.

Larger purchase, like a truck or a commercial mower need to be depreciated over a period of time....which means you spread the cost of that item out over several years.

How does this help you?
It reduces your net income which reduces your tax burden. If you sell $100,000 in servie in 2005.....and you depreciate $20,000 worth of equipment....then you only pay tax on $80,000 instead of $100,000.

You should get an accountant to handle this stuff for you.

[Phil Nilsson]

Thanks Phil, That sounds simple enough, but how does it help me?

Well hypothetically it doesn't since it's a cost no matter how it is written off. More cost ... less profit. But without equip you can't make money? ... wrong ... take a look at expansion (once you have reg customers with reg services) and push those services that are more labor intensive than equip intensive ... because is this biz ... it's "man and machine" almost every time ... okay now think jobs that are "man with no machine" ... or (less machine) and see less costs.