Integrity Financial Groups, a Leader in Truck Finance & Equipment Finance, Explains How to Use Depreciation to Your Advantage

Equipment Finance

​​Dallin Hawkins, Director of Sales & Operations - Integrity Financial Groups, LLC

Equipment Finance | How Does Depreciation Apply to Your Equipment Purchases?

Deducting depreciation is an effective business tool for recovering the cost of such equipment over its usable life while also improving cash flow through the tax implications.

Dallin Hawkins, Director of Sales & Operations

If your business uses equipment finance to purchase capital equipment such as trucks or heavy equipment, machinery, or other vehicles, you have the potential to take advantage of IRS tax law to depreciate those assets over their useful life, or until you remove them from service. Depreciation schedules (the time period allowed for standard depreciation) vary from asset to asset, but the key advantage to business is that you can deduct the cost or basis of acquiring those assets – trucks for instance – over the expected life of the vehicle.

There are certain rules or guidelines that apply to the depreciating those trucks or assets, of course:

  • Depreciated assets must have an expected useful life greater than a year
  • You must use the vehicles or property for business purposes. If it’s used for both personal and business use, you can still depreciate the value based on the business use.
  • Here’s the main stipulation – you must own the property being depreciated. This means you will not be able to take the advantage of deducting depreciation on certain types of leased or rented vehicles.

How Long Does Depreciation Last?

Most property or equipment has a standard depreciation schedule based on the class of the asset for the anticipated life. Office equipment may qualify for a 3 or 5 year period for depreciation where trucks and other vehicles could be depreciated over even a longer period of time.

Deducting depreciation is an effective business tool for recovering the cost of such equipment over its usable life while also improving cash flow through the tax implications.

Accelerated Depreciation – an Additional Business Advantage

Especially attractive for startup businesses, accelerated depreciation allows deduction of a larger portion of the asset depreciation earlier in the cycle. Although the depreciation will then be reduced in subsequent years, this frees capital for use in purchasing additional equipment or developing other portions of the business through the accompanying tax deferral.

Note that accelerated depreciation does not mean that you will be able to claim more depreciation for any given asset. It only means you can claim the deduction earlier rather than in later years as opposed to taking the same amount over the full depreciated life of the asset (straight-line depreciation). But if you need the cash flow benefits for other purposes, or for you profit and loss statements, accelerated depreciation can be a useful option.

Depreciation Advantages Summarized

Your business can benefit from the advantages in a number of ways:

  • Tax deductions that free capital for other uses
  • Accelerated depreciation option to help start-up companies further reduce tax burdens
  • Improve balance sheet for review by potential investors or credit-worthiness

Who You Should Talk to Regarding Your Depreciation Options

Integrity Financial Groups is a leader in the equipment finance industry. We have developed funding partnerships that give our customers the options and financial diversification they need to maximize their effective use of capital that lets their businesses grow. Contact us today at 801-386-8222 to get started with innovative financing structured to meet your specific needs.

Source: Integrity Financial Groups, LLC