Which depreciations can I claim as an entrepreneur?
November 30, 2022 | 50,00 EUR | answered by Zofia Schulz
Dear tax advisor,
My name is Albrecht Gerdes and I have been running a small IT services company for several years. Over the past years, I have made some investments, including the purchase of computers, software, and office furniture. Now I am wondering what depreciations I can claim as a business owner to minimize my tax burden.
Currently, I am unsure about which depreciations are relevant for my company and how to correctly report them in my tax return. I have heard that there are different types of depreciations, such as straight-line depreciation or declining balance depreciation. Which method is most suitable for my company and how do I calculate the depreciation amounts?
I am also concerned that I may have overlooked depreciations that could bring me tax benefits. Are there certain purchases or investments that I am not allowed to depreciate? And how can I ensure that I accurately consider all relevant depreciations?
I would greatly appreciate it if you could provide me with a detailed overview of the depreciations that I can claim as a business owner, as well as specific guidance on how to calculate and report them in my tax return. Additionally, it would be helpful if you could give me tips on how to optimize my depreciations planning and utilization in the future.
Thank you in advance for your assistance.
Best regards,
Albrecht Gerdes
Dear Mr. Gerdes,
Thank you for your inquiry regarding depreciation for your IT services company. As a tax advisor, I would like to provide you with detailed information on this topic and help you optimize your depreciation options.
First and foremost, it is important to understand that depreciation is the systematic reduction of the tax value of assets. This reduction is usually spread over a certain period of time to appropriately account for the asset's value decrease. Depreciation can be claimed as operating expenses and therefore has a direct impact on your tax burden.
There are various methods available for depreciating assets such as computers, software, and office furniture. The most common depreciation methods are straight-line depreciation and declining balance depreciation. With straight-line depreciation, the asset's purchase price is evenly spread out over its useful life. Declining balance depreciation, on the other hand, allows for higher depreciation amounts in the initial years, which decrease over time.
The most suitable method for your company depends on various factors, such as the planned useful life of the assets or your company's tax situation. Generally, you are free to choose the depreciation method as long as it complies with tax regulations.
To calculate depreciation amounts correctly, you need to determine the purchase price of the assets and establish the useful life. Then, using the chosen depreciation method, you can calculate the annual depreciation amount and include it in your tax return.
It is important to note that not all purchases or investments are depreciable. For example, low-value assets can be fully depreciated up to a certain amount per year. Additionally, there are specific assets that are subject to special depreciation or require certain tax regulations.
To ensure that you consider all relevant depreciation, I recommend creating a detailed list of your assets and investments. Regularly review your depreciation schedules and adjust them as needed to maximize tax benefits.
Finally, I recommend consulting a tax advisor for complex issues or uncertainties regarding depreciation. A professional tax advisor can provide personalized advice and help you optimize your depreciation options.
I hope this information is helpful to you and I am available for any further questions.
Sincerely,
Zofia Schulz
