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Simple English definitions for legal terms
accelerated depreciation
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A quick definition of accelerated depreciation:
Accelerated depreciation is a way for businesses to decrease the value of an asset faster in the beginning of its life. This means they can deduct more money from their taxes sooner. It's like getting a bigger allowance earlier, which is better because money is worth more when you get it sooner. This is different from straight-line depreciation, where the value of the asset is decreased evenly over its entire life.
A more thorough explanation:
Accelerated depreciation is a way for businesses to depreciate a larger portion of an asset's value earlier in its life. This is different from straight-line depreciation, where the asset's value is depreciated evenly over its useful life.
One common method of accelerated depreciation is called MACRS. This method allows businesses to take larger depreciation deductions in the early years of an asset's life, which can be beneficial for cash flow and tax purposes.
For example, let's say a business purchases a delivery truck for $50,000. Using straight-line depreciation, the business would deduct $10,000 per year for five years. However, using MACRS, the business could deduct $20,000 in the first year, $32,000 in the second year, and so on. This means the business can deduct more in the early years, which can help with cash flow and reduce taxable income.
Accelerated depreciation is generally preferred by businesses because it follows the principle of the time-value of money. This means that money received earlier is more valuable than money received later. By taking larger depreciation deductions earlier, businesses can save money in the long run.