How to Calculate Depreciation

Video Transcript

"Hello again, I'm Spence, and this is Jeanine, and we're with Account Teams in Salt Lake City, and we do accounting work for people, and help them with their taxes, and some of their business analysis. I want to talk to you a little bit about depreciation today. When you buy a piece of equipment, the, the accounting practices and the IRS will not let you deduct the full amount of that equipment when you buy it, little hand tools and small things like a hundred, two hundred dollar items don't matter, but bigger items they say, since you used this over five years, you can only deduct a certain amount each year, and so they won't let you deduct it to get less taxes. So that is called depreciation. You have a thousand dollar item, and you can take two hundred dollars depreciation every year, which would be even depreciation, or straight line. There's another kind of depreciation, and you've probably seen this when you've bought a car. You bought a car, paid twenty thousand bucks, as soon as you drove it off the lot, it's worth eighteen thousand. The first year, it was only worth fourteen thousand, and the second year, it was only worth twelve thousand, and it drop a lot in the beginning, and a little at the end. So this is called accelerated depreciation. When companies figure depreciation, they usually use accelerated depreciation and figure it in their taxes, so that they can get a tax break early on. They figure straight line depreciation when they're doing their company books so it shows more profit early on, and when they try to get loans and show investors what they're doing."