People come to us at Safe Harbor LLP to act as their “in-house” CFO and small business tax expert.. We advise on everything from how to set up a business (or startup) to how to structure employee compensation to taxes… to even the thorny issue of what can be depreciated, when and how. Recently, the IRS has issued new guidance on so-called “Tangible property.” If you’d like some light reading, click here to read the fun-filled ‘Guidance Regarding Dispositions of Tangible Depreciable Property.’ To just educate yourself on depreciation the IRS has a layman’s explanation, here, and here.
In fact, there’s a wonderful article on ‘Implementing the New Tangible Property Regulations‘ in the Journal of Accountancy, January 31, 2014. But realistically… let us read the IRS publications and technical articles, so you can manage your business. It’s what Adam Smith called the ‘division of labor.’
San Francisco Businesses and Depreciation
In a nutshell…
San Francisco Bay Area businesses may own all sorts of property. This might be anything from a physical building to a computer, or even a patent or other form of intellectual property. In layman’s terms, depreciation merely means that each year a type of property is put into service it loses some of its value. Most consumers are aware, for example, that as soon as they buy a ‘new’ car it loses a great deal of value. In fact, over the life of a car, it loses a lot of value, ultimately becoming worthless when it is scrapped. The IRS recognizes this fact and therefore if you were to spend $100,000 on a new oven for your San Francisco restaurant, you’d have to depreciate its value over the lifetime of the equipment. Each year you’d be able to take a portion of that $100,000 as a business expense; but generally speaking, you’d not be able to take the full $100,000 as a deduction in the year of purchase.
Depreciation can get very complicated and strategic as there are IRS regulations as to what, when, where, and how something can be depreciated. There are also tips and tricks to time your depreciation, within the limits of the law, to maximize your tax advantages.
Rather than explain every detail of depreciation and your San Francisco business, reach out to us for a free consultation. If you are considering a major purchase (or you have intangible assets such as patents or other intellectual property), we can advise you in how to expense those items. Our job is to keep our eye on new IRS regulations, such as those regarding tangible property. Our job is to help you make your business run smoothly in a financial sense.