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Depreciation: Redistributing the Costs Associated with Fixed Assets

asset depreciation the harding group

The IRS mandates that you depreciate anything valued above $2,500. Thus, if your assets don’t meet that threshold, you can expense them and move on.

Entrepreneurship is an exciting prospect. But it can also be frightening – especially when you are launching your first entrepreneurial venture. Larger purchases are investments – they might not show how valuable they are now, but down the road, you’ll be glad that you took your chances on them. Depreciation helps take the sting out of those hefty costs, which can also leave your recordkeeping in shambles. 

Depreciation vs. Expense 

Depreciation, as a concept, is more complicated than the typical expense report. How long will the asset last? Can you make it last longer than expected? Office furniture, production equipment, computers, and other similar items can all be depreciated. 

Then consider the actual price tag of the asset in question – larger items tend to be costlier. The IRS mandates that you depreciate anything valued above $2,500. Thus, if your assets don’t meet that threshold, you can expense them and move on.   

Straight-Line Depreciation

This method is a calculation that allows you to predict when the asset will no longer be useful. At that point, you’ll probably ready to replace the purchase or sell it. The depreciation tracks the pace at which you “pay off” or extract every last dollar of value from the asset in question.

Fixed Assets and Resale 

The salvage value tells you how much money you can expect after a resale transaction. To find out what the salvage value is, depreciate the cost of the equipment. This approach isn’t as simple as it sounds because you’ll need to subtract the calculation’s expected resale value. Why does this matter so much? No matter the outcome, you must balance your books.  

Your Takeaway

Depreciation of your fixed assets essentially means that the costs they incur are divided amongst several accounting periods. In this case, it can be for the years that it will yield dividends for you. The depreciated asset needs to be large enough that you’ll be using it for multiple accounting periods and will affect your bookkeeping the entire time. While you can perform depreciation in several ways, simply divide the cost by how many years you want to use it for; the figure that remains should be what you record as an expense every year going forward. 

Trust the Professionals at the Harding Group

Unlike other accounting firms, The Harding Group, located in Annapolis, MD, will never charge you for consultations and strive for open communication with our clients. 

Are you interested in business advising, tax preparation, bookkeeping and accounting, payroll services, training + support for QuickBooks, or retirement planning?  We have the necessary expertise and years of proven results to help. 

We gladly serve clients in Annapolis, Anne Arundel County, Baltimore, Severna Park, and Columbia. If you are ready to take the stress out of tax time, contact us online or give us a call at (410) 573-9991 for a free consultation. For more tax tips, follow us on Facebook, Twitter, YouTube, and LinkedIn.


This entry was posted on Friday, April 2nd, 2021 at 12:59 pm. Both comments and pings are currently closed.

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