Depreciation for Tax and Accounting

On Demand Webinar

Webinar Details $219

  • Rated:
  • Webinar Length: 100 Minutes
  • Guest Speaker:   Chuck Borek
  • Topic:   Taxation and Accounting
  • Credit:   CPE 2.0, ATATX 1.5
All Access Membership

Nearly all businesses invest in assets that are used in operating the business. The cost of long lived assets is spread over the useful life of the asset and expensed against revenue for both accounting and tax purposes through a process called depreciation. However, the methods allowed under Generally Accepted Accounting Principles (GAAP) and the methods allowed for tax purposes are quite different. This webinar will cover the various methods of depreciation, which are allowed for tax purposes and which are allowed under GAAP, and why businesses must keep more than one set of books when it comes to accounting for fixed assets.

In this webinar, you will learn:

  • Which property is depreciable and which costs must be included (capitalized).
  • Application of specific depreciation methods and the information is required to use a particular method
  • Methods for accelerating cost recovery, including bonus depreciation and section 179 first year expensing..
  • How to track and reconcile depreciation expense and book value when more than one method is required.

Agenda:

  • Definitions
  • Factors in computing depreciation
  • Cost, Useful life, Depreciation method, Salvage value
  • Accounting methods
  • Straight line, Units of production, Sum of the years’ digits, Declining balance
  • Tax methods
  • MACRS, ACRS, Section 179, Bonus depreciation, Intangible assets
  1. Introduction
  2. GAAP 00:03:13
  3. Expenditure of Cash or Incurrence of Debt 00:04:41
  4. Expenditure of Cash or Incurrence of Debt - Depreciation (Amortization) 00:08:07
  5. Do/Don’t 00:08:28
  6. The Matching Principle 00:08:47
  7. The Matching Principle - Salvage Value 00:09:27
  8. Judgments Required 00:11:11
  9. Accelerated Depreciation 00:13:32
  10. Impairment Write Downs 00:14:28
  11. Tax Depreciation 00:17:31
  12. Cost Basis 00:18:02
  13. Inherently Facilitative Costs That Must Be Capitalized 00:19:46
  14. Acquisition by Inheritance  00:22:36
  15. Acquisition by Gift - Special Rule 00:24:36
  16. Acquisition by Gift - Loss 00:25:59
  17. Acquisition by Gift - Gain 00:26:28
  18. Acquisition by Gift - No Gain Or Loss 00:26:42
  19. Effect of Gift Taxes Paid by Donor 00:26:52
  20. Example 00:27:32
  21. Joint Tenant Survivor 00:29:03
  22. Capitalized Cost of Self-Constructed Assets 00:30:11
  23. Direct Costs 00:31:59
  24. Indirect Costs 00:32:48
  25. Indirect Costs Not Capitalized 00:34:51
  26. Allocating Basis of Constructed Assets 00:35:22
  27. Basis of Property Acquired in § 1031 Tax-Free Exchange 00:37:18
  28. De Minimis Safe Harbor 00:39:11
  29. The De Minimis Safe Harbor Truce 00:42:15
  30. Safe harbor Requirements 00:44:46
  31. Cannot Componentize 00:47:38
  32. Safe Harbor Carve-Outs 00:49:00
  33. De Minimis Safe Harbor Election 00:52:20
  34. MACRS Depreciation 00:51:05
  35. MACRS Critical Elements 00:52:07
  36. MACRS: ADS VS. GDS 00:54:39
  37. MACRS: GDS Recovery Periods - Three Year Property 00:55:19
  38. MACRS: GDS Recovery Periods - Five-Year Property 00:55:44
  39. MACRS: GDS Recovery Periods - Seven-Year Property 00:56:16
  40. MACRS: GDS Recovery Periods - 10-Year Property 00:56:47
  41. MACRS: GDS Recovery Periods - 15-Year Property 00:57::11
  42. MACRS: GDS Recovery Periods - 20-Year Property 00:57:58
  43. MACRS: GDS Recovery Periods  - Real Property 00:58:22
  44. MACRS: ADS Required 01:00:14
  45. MACRS: ADS Recovery Periods 01:01:21
  46. MACRS Conventions 01:02:43
  47. MACRS Methods 01:05:28
  48. Farm Equipment Depreciation 01:06:14
  49. Definition Consolidation 01:06:52
  50. Section 179 Deduction 01:07:32
  51. Four Types of Code § 179 Property 01:09:54
  52. Non-Qualifying Property 01:10:36
  53. Purchased and Placed in Service Requirement 01:11:02
  54. Business Use 01:11:45
  55. Like-Kind Exchange Property 01:15:00
  56. Recapture 01:15:33
  57. Recapture - Example 01:17:18
  58. Recapture - Example Cont’d 01:17:51
  59. No § 179 Deduction for Cars 01:19:01
  60. Heavy SUVs (> 6,000 lbs.) 01:19:07
  61. Commercial Vehicles (Depreciable) 01:19:22
  62. Section 179 Acquisition Limitation 01:20:11
  63. Section 179 Taxable Income Requirement 01:20:59
  64. Carryover of Unused Costs 01:22:24
  65. Trusts and Estates 01:25:05
  66. Trusts and Estates - Example 01:26:02
  67. Additional First-Year Depreciation 01:27:51
  68. Bonus Depreciation 01:27:53
  69. General Requirements for AFYD 01:28:41
  70. Electing Out of AFYD 01:29:21
  71. Luxury Automobile Depreciation Limits for 2022 01:29:42
  72. Amount of Mileage Expense Deemed Depreciation 01:33:53
  73. Intangible Assets and Amortization 01:35:02
  74. Acquired Intangibles 01:35:07
  75. Lump-Sum Purchase of Business Assets 01:35:39
  76. Created Intangibles 01:36:25
  77. Intangibles Amortization 01:37:18
  78. Speaker Wrap-Up/Attendee Questions 01:38:47
  79. Presentation Closing 01:40:16

  • Accelerated Depreciation 00:13:35, 01:09:59
  • AFYD - Additional First-Year Depreciation 01:27:51, 01:28:41
  • Alternative Depreciation System (ADS) 00:51:47, 00:54:40, 01:01:12
  • Amortization 00:08:12, 01:35:05, 01:37:24
  • Applicable Financial Statement - AFS 00:42:14, 00:42:55
  • Asset 00:05:46, 00:14:28,, 00:15:10, 00:30:31
  • Balance Sheet (BS) 00:47:16
  • Bonus Depreciation 01:27:40, 01:27:53, 01:32:26
  • Capital Gain 01:16:02
  • Capitalize 00:05:09, 00:35:00, 00:39:53, 00:46:06, 01:04:19
  • Code section 1060 01:35:41
  • Code Section 1245 01:15:46
  • Cost 00:06:57, 00:09:30, 00:14:17, 00:18:08, 00:30:38, 00:36:14
  • Cost Basis 00:18:12, 00:23:20
  • De Minimis Safe Harbor 00:39:11, 00:44:47
  • Depreciation 00:00:07, 00:01:39, 00:03:27, 00:07:01, 00:08:17, 00:08:53, 00:35:00, 00:39:23, 00:52:20, 00:54:20, 01:16:14
  • Direct Costs 00:31:59
  • Double-Declining Balance (DDB) Method 00:54:29, 01:05:31
  • Expenditure 00:04:47, 00:06:00, 00:18:42
  • Expense 00:05:26, 00:06:47, 00:19:34
  • Fair Market Value (FMV) 00:22:54, 00:27:47
  • General Depreciation System (GDS) 00:51:35, 00:54:48, 00:55:28, 01:01:28
  • Generally Accepted Accounting Principles (GAAP) 00:01:17, 00:03:15, 00:05:40, 00:08:54, 00:11:22, 00:39:32, 00:44:03, 01:14:09
  • Goodwill 01:36:14
  • Income Statement 00:06:52
  • Indirect Costs 00:32:50, 00:34:50
  • Inherently Facilitative Cost 00:19:46
  • Intangible Asset  00:08:22, 01:35:02, 01:36:05
  • Inventory 00:07:27, 00:08:38, 00:49:04
  • IRC Section 1031 00:37:18
  • Like-Kind Exchange 01:15:00
  • Lump-Sum Purchase of Business Asset 01:35:39
  • MACRS - Modified Accelerated Cost Recovery System 00:51:05, 00:52:06, 01:01:16, 01:38:04
  • Net Appreciation 00::27:03
  • Personal Property 00:52:29, 01:02:59
  • Real Property 00:52:29, 00:58:22, 01:02:48, 01:05:40, 01:37:47
  • Revenue 00:05:50, 00:06:15
  • Safe Harbor 00:20:39, 00:42:12, 00:43:39, 00:47:26
  • Salvage Value 00:01:43, 00:09:39
  • Schedule C 01:21:11, 01:21:30
  • S Corporation 01:25:39, 01:26:09
  • Section 179 Deduction 00:34:57, 01:07:33, 01:14:02, 01:15:20, 01:20:15, 01:21:41, 01:25:36, 01:37:41
  • Section 197 Intangibles 01:37:18
  • Stepped-Up Basis 00:22:50
  • Straight Line Depreciation 00:54:30, 00:54:58, 01:01:06, 01:05:33, 01:37:21
  • Subchapter K 01:20:29
  • Subchapter S 01:20:30
  • Tangible Asset 00:08:25
  • Tangible Personal Property 01:00:29, 01:10:06
  • Tangible Property 00:39:03
  • Tax Cuts and Jobs Act 01:06:20
  • Total Cost 00:11:17
  • Transaction 00:20:05
  • UNICAP Rules 01:00:46

AFYD - Additional First-Year Depreciation: Bonus depreciation is a tax incentive that allows a business to immediately deduct a large percentage of the purchase price of eligible assets, such as machinery, rather than write them off over the "useful life" of that asset. Bonus depreciation is also known as the additional first-year depreciation deduction.

Accelerated Depreciation: Accelerated depreciation refers to any one of several methods by which a company, for 'financial accounting' or tax purposes, depreciates a fixed asset in such a way that the amount of depreciation taken each year is higher during the earlier years of an asset's life.

Acquisition: An acquisition is referred to as a business transaction in which one firm buys all or part of another company's stock or assets. The acquisition commonly happens to gain control of and expand on the target company's strengths while also capturing energies. This can also be accountable for an acquisition definition.

Alternative Depreciation System (ADS): The alternative depreciation system (ADS) is a method that allows taxpayers to calculate the depreciation amount the IRS allows them to take on certain business assets. Depreciation is an accounting method that allows businesses to allocate the cost of an asset over its expected useful life.

Amortization: An accounting term that refers to the process of allocating the cost of an intangible asset over a period of time. It also refers to the repayment of loan principal over time. (investinganswers.com)

Applicable Financial Statement - AFS: An AFS includes a financial statement required to be filed with the SEC, as well as other types of certified audited financial statements accompanied by a CPA report, including a financial statement provided for a loan, reporting to shareholders, or for other non-tax purposes

Asset: Property owned by a person or company, regarded as having value and available to meet debts, commitments or legacies.

Balance Sheet (BS): A financial report that summarizes a company's assets (what it owns), liabilities (what it owes) and owner or shareholder equity at a given time.

Bonus Depreciation: A valuable tax-saving tool for businesses. It allows your business to take an immediate first-year deduction on the purchase of eligible business property, in addition to other depreciation. (www.thebalancesmb.com)

Capital Gain: Capital gain is an economic concept defined as the profit earned on the sale of an asset that has increased in value over the holding period. An asset may include tangible property, a car, a business, or intangible property such as shares.

Capitalize: To capitalize is to record a cost/expense on the balance sheet for the purposes of delaying full recognition of the expense. In general, capitalizing expenses is beneficial as companies acquiring new assets with long-term lifespans can amortize the costs. (www.investopedia.com)

Code Section 1245: Section 1245 Property is any new or used tangible or intangible personal property that has been or could have been subject to depreciation or amortization. Examples of tangible personal property are machinery, vehicles, equipment, grain storage bins and silos, blast furnaces, and brick kilns.

Code section 1060: Section 1060 of the code requires that in an “applicable asset acquisition,” the purchaser’s basis in the acquired assets and the seller’s consideration with respect to the acquisition must be allocated among the assets pursuant to the “residual method

Cost: The sum of the applicable expenditures and charges directly or indirectly incurred in bringing an article to its existing condition and location

Cost Basis: Cost basis is the original value or purchase price of an asset or investment for tax purposes. The cost basis value is used in the calculation of capital gains or losses, which is the difference between the selling price and purchase price. Calculating the total cost basis is critical to understanding if an investment is profitable or not, and any possible tax consequences. If investors want to know whether an investment has provided those longed-for gains, they need to keep track of the investment's performance.

De Minimis Safe Harbor: The de minimis safe harbor is simply an administrative convenience that generally allows you to elect to deduct small-dollar expenditures for the acquisition or production of property that otherwise must be capitalized under the general rules

Depreciation: A reduction in the value of an asset with the passage of time, due in particular to wear and tear.

Direct Costs: Direct costs are expenses that directly go into producing goods or providing services, while indirect costs are general business expenses that keep you operating. Examples of direct costs are direct labor, direct materials, commissions, piece-rate wages, and manufacturing supplies.

Double-Declining Balance (DDB) Method: The double-declining balance (DDB) method is a type of declining balance method that instead uses double the normal depreciation rate. Depreciation rates used in the declining balance method could be 150%, 200% (double), or 250% of the straight-line rate.

Expenditure: An expenditure is money spent on something. Expenditure is often used when people are talking about budgets.

Expense: Offset (an item of expenditure) as an expense against taxable income.

Fair Market Value (FMV): The term fair market value is used throughout the Internal Revenue Code among other federal statutory laws in the USA including Bankruptcy, many state laws, and several regulatory bodies. In litigation in many jurisdictions in the United States, the fair market value is determined at a hearing.

General Depreciation System (GDS): General Depreciation System (GDS) refers to a method used to compute personal property's depreciation. Modified accelerated cost recovery system (MACRS) is the main method of depreciation when it comes to federal income tax in the United States.

Generally Accepted Accounting Principles (GAAP): A set of rules and guidelines developed by the accounting industry for companies to follow when reporting financial data. Following these rules is especially critical for all publicly traded companies.

Goodwill: Goodwill is an intangible asset that is associated with the purchase of one company by another. Specifically, a goodwill definition is the portion of the purchase price that is higher than the sum of the net fair value of all of the assets purchased in the acquisition and the liabilities assumed in the process.

IRC Section 1031: Under Section 1031 of the United States Internal Revenue Code, a taxpayer may defer recognition of capital gains and related federal income tax liability on the exchange of certain types of property, a process known as a 1031 exchange.

Income Statement: One of the three primary financial statements used to assess a company's performance and financial position (the two others being the balance sheet and the cash flow statement). The income statement summarizes the revenues and expenses generated by the company over the entire reporting period. (investinganswers.com)

Indirect Costs: Indirect costs are costs that are not directly accountable to a cost object. Indirect costs may be either fixed or variable. Indirect costs include administration, personnel, and security costs. These are those costs that are not directly related to production. Some indirect costs may be overhead. Examples of indirect costs are production supervision salaries, quality control costs, insurance, and depreciation.

Inherently Facilitative Cost: An “inherently facilitative” cost is an amount paid for certain types of activities (i.e., services performed) to investigate or otherwise pursue the transaction. Inherently facilitative costs must be capitalized regardless of when the related services are performed.

Intangible Assets: An asset that is not physical in nature. Goodwill, brand recognition and intellectual property, such as patents, trademarks and copyrights, are all intangible assets. (www.investopedia.com)

Inventory: A company's inventory typically involves goods in three stages of production: raw goods, in-progress goods, and finished goods that are ready for sale. Inventory or stock refers to the goods and materials that a business holds for the ultimate goal of resale, production or utilization.

Like-Kind Exchange: A like-kind exchange under United States tax law, also known as a 1031 exchange, is a transaction or series of transactions that allows for the disposal of an asset and the acquisition of another replacement asset without generating a current tax liability from the sale of the first asset.

Lump-Sum Purchase of Business Assets: A lump-sum purchase occurs when several assets are acquired for a single price. Each of the assets must be recorded separately as a fixed asset in the accounting records; to do so, the purchase price is allocated among the various acquired assets based on their fair market values.

MACRS - Modified Accelerated Cost Recovery System: The Modified Accelerated Cost Recovery System is the current tax depreciation system in the United States. Under this system, the capitalized cost of tangible property is recovered over a specified life by annual deductions for depreciation. The lives are specified broadly in the Internal Revenue Code.

Net Appreciation: Net Appreciation means the amount by which cumulative capital gains exceed the sum of the capital losses.

Personal Property: Personal property is something that you could pick up or move around. This includes such things as automobiles, trucks, money, stocks, bonds, furniture, clothing, bank accounts, money market funds, certificates of deposit, jewels, art, antiques, pensions, insurance, books, etc.

Real Property: Real property is land and any property attached directly to it, including any subset of land that has been improved through legal human actions. Examples of real properties can include buildings, ponds, canals, roads, and machinery, among other things

Revenue: In accounting, revenue is the income that a business has from its normal business activities, usually from the sale of goods and services to customers. Revenue is also referred to as sales or turnover. Some companies receive revenue from interest, royalties, or other fees.

S Corporation: An S corporation, for United States federal income tax, is a closely held corporation that makes a valid election to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code. In general, S corporations do not pay any income taxes.

Safe Harbor: A safe harbor is a provision of a statute or a regulation that specifies that certain conduct will be deemed not to violate a given rule. It is usually found in connection with a vaguer, overall standard. Under the safe harbor, a “rental real estate enterprise” is treated as a trade or business for purposes of Sec. 199A if at least 250 hours of services are performed each tax year with respect to the enterprise. ... The safe harbor requires that separate books and records be maintained for the rental real estate enterprise.

Salvage Value: Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset's estimated salvage value is an important component in the calculation of a depreciation schedule.

Schedule C: Use Schedule C (Form 1040) to report income or loss from a business you operated or a profession you practiced as a sole proprietor. An activity qualifies as a business if: Your primary purpose for engaging in the activity is for income or profit.

Section 179 Deduction: Section 179 of the IRS Code was enacted to help small businesses by allowing them to take a depreciation deduction for certain assets (capital expenditures) in one year, rather than depreciating them over a longer period of time. Taking a deduction on an asset in its first year is called a "Section 179 deduction.

Section 197 Intangibles: Section 197 intangibles are certain intangible assets acquired after August 10, 1993 (or after July 25, 1991, if chosen) in connection with the acquisition of a business which must be amortized over 15 years from the date of acquisition regardless of the assets useful life.

Stepped-Up Basis: Step-up in basis, or stepped-up basis, is what happens when the price of an inherited asset on the date of the decedent's death is above its original purchase price. The tax code allows for the raising of the cost basis to the higher price, minimizing the capital gains taxes owed if the asset is sold later.

Subchapter K: Subchapter K of the Internal Revenue Code of 1954 (sections 701 through 761)1 contains the statutory rules for the taxation of partners and partnerships. Anyone who has tried to gain a working knowledge of these sections will readily agree that one of the most important questions about subchapter K is how one avoids it.

Subchapter S: Subchapter S corporations, or S corporations, are corporations that are taxed on a "flow -through" basis. This means that tax liabilities from income (or deductions from losses) are passed onto the corporations' shareholders to be declared individually.

Tangible Asset: A tangible asset is an asset that has physical substance. Examples include inventory, a building, rolling stock, manufacturing equipment or machinery, and office furniture.

Tangible Personal Property: Tangible Personal Property Tax is an ad valorem tax assessed against the furniture, fixtures and equipment located in businesses and rental property. Ad valorem is a Latin phrase meaning “according to worth”. This tax is in addition to your annual Real Estate or Property Tax.

Tangible Property: Tangible property in law is, literally, anything which can be touched, and includes both real property and personal property (or moveable property), and stands in distinction to intangible property.

Tax Cuts and Jobs Act: The Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018, Pub.L. 115–97, is a congressional revenue act of the United States originally introduced in Congress as the Tax Cuts and Jobs Act, that amended the Internal Revenue Code of 1986.

Total Cost: Total cost is the total expenditure incurred to produce some type of output. From an accounting perspective, the total cost concept is more applicable to financial reporting, where overhead costs must be assigned to certain assets.

Transaction: In QuickBooks, a transaction type identifies what kind of transaction occurred, such as a customer transaction, bill payment or a bank transfer. When you submit a transaction, you type in a transaction code to represent it.

UNICAP Rules: The UNICAP rules require your business to capitalize the direct and indirect costs of its inventory, including both those inventory items you produce and those you acquire for resale. This process generally requires capitalizing certain expenditures that would otherwise be expensed.


Guest Speaker

  • Chuck Borek

CPE Credit

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ATATX Credit

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