Depreciation

Dining, Drinking, Merrymaking—Know When Your Entertainment Expenses are Deductible

Group Of Friends Enjoying Night Out At Rooftop Bar

Business isn’t always about the dull stuff. In fact entertainment is a part and parcel of most businesses, and the good news is that most entertainment expenses are actually deductible.

In every business, pleasing customers is a must. Especially if you are in sales or marketing, entertaining customers is an essential part of your job or business. Entertainment expenses are usually paired with meal expenses, and both of them are commonly considered legitimate business expenses.

While it is good to know that there’s a clear rule on entertainment deductions, the problem with many business owners is that they think that just about any theater pass, event or meal with a client or a potential client may already qualify as a valid deduction when in fact, it is not always the case.

But how will you know if your entertainment expenses count as business?

 When Do Entertainment Expenses Count as Pleasure or Business?

 Before we get down to the actual rules, let’s try to understand them the easy way. The rules involve figures and stipulations which may sound a bit off for you, but essentially, their bottom line is simply this: When it comes to entertainment expenses, it is usually not considered a deductible expense if you are having too much pleasure. Take a look these easy-to-understand rules:

  1. Make business your priority. Always get down to business. Remember that any form of entertainment that you do must in one way or another be related to the conduct of your business, or must at least be associated with a discussion pertaining to your business. Simply put, if we have a dinner together but don’t discuss business stuff such as sales projections or tax strategies, and instead talk about our children and family life, then you are not supposed to expect the amount we spend for our meal as deductible entertainment expense.

Same thing goes for throwing parties. You cannot simply rationalize that you throw a party to build camaraderie with your clients. For the party costs to be deductible, you should be able to conduct business at any time in the course of the party. It can either be before, after or during the party and may include product demonstration or a brief talk.

Aside from soirees, here are other forms of entertainment expenses that you should consider:

  • If you are a business owner, meals for your employees during a busy time are entirely deductible. It is better if you track such costs under a separate category such as “crew meals,” so your tax professional will not apply the 50% rule during tax time.
  • Do not deduct repeated meals with your business partner when you take turns in paying.
  • You can write off your hotel expenses when attending a trade show, but you cannot do it all year round and mark it as an entertainment expense again and again. So, do not try to write off the amount you spend for entertainment facilities, including property taxes, mortgage interest, swimming pool rentals, tennis courts or a vacation in a resort.
  • You also cannot write off dues that you pay to athletic clubs or hotel clubs, including those that offer free meals when you take part in business discussions.
  1. Make sure that the environment is conductive for the conduct of business. Before writing off your entertainment expenses after dining somewhere, you have to make sure that the environment is business-conducive enough to qualify for a deduction. There was an instance before when the IRS had to reject the deduction of passes to a baseball game because the noise at the ballpark obviously did not allow for a good business discussion.
  2.  Mind your guest list. In writing off your entertainment expenses, you must also take your guest list into consideration. If your event is organized for employees and their spouses or is open to the general public, you may write off its total cost. On the other hand, if the event is for your clients or potential clients, or those business associates or contractors who conduct business with you, then you are allowed to write off only 50% of the total cost. In case your guest list consists of employees and their spouses and some clients, then part of your entertainment cost may be allocated as a 100% write-off, while the remainder can be a 50% write-off based on the number of guests who attended in every category.
  3.  Do not be too lavish or extravagant. Going overboard is a big no-no for the Internal Revenue Service (IRS). If you want to increases the chances of your entertainment expenses to be written off, always choose to keep your entertainment or meal simple by making sure that its cost is aligned with the budget of your company. That means that if your company is not that big to pay for lavish parties, then do not bring your clients to first-class accommodations or parties and expect the cost to be written off.
  4.  Document everything. If you want to win your fight against the IRS, then you have to build up your defenses. There are cases when people from the IRS would come knocking on doors to ask you to back up your claims for deductions. In the event that they come knocking onto your door, you have to make sure that you are prepared to defend your deductions. You do that by making sure that you keep every little piece of evidence that you can keep to support your deduction claims, such as the invitation that makes clear your business purpose, photos of your guests during a product presentation, or a video clip. You may also want your guests to sign a guest book so you can prove to the IRS the right allocation of your entertainment expenses between company employees, business associates, clients, etc. Most importantly, keep all your receipts. Based on the IRS rule, however, expenses that cost less than $75 do not necessarily require receipts. In such cases, a simple journal entry in your appointment book that includes the names of attendees, amount spent and location is enough.

So, when are entertainment expenses deductible?

Basically, entertainment expenses that can be written off are those used to entertain clients or potential clients, customers, business partners, employees, and if these expenses are proven to be–

  • “ordinary and necessary” and
  • either directly related or associated.

As per the IRS rules on entertainment expenses, it is a must that the expenses are ordinary and necessary before they can be written off. That means that they should be common, accepted and appropriate for the business. Entertainment expenses can be considered necessary even without being required. Also, they should be able to meet at least one of these tests:

  • Direct Test. This test involves proving or showing that there was a business purpose to the entertainment and that its main objective was to gain profit. You also must be able to show that it was held in a business setting and that it involved a discussion of the business. If for instance, you gathered your employees somewhere to present employee awards, the amount spent for that event can be considered as deductible expense. However, if you only went fishing with them and there was no clear connection between the activity and your business, that cannot be considered as deductible expense.
  • Associated Test. In this test, you must be able to show that the entertainment was tied to your business and happened directly before or after a business-related discussion. An example of this would be having a business discussion with your clients in the office and then inviting them to a game after your meeting. That will pass the associated test since it happened directly after the business discussion. However, if you took the clients days later, then that will not pass this test.

The following are examples of expenses that are not subject to the 50% limit, which means that they are fully deductible:

  • Those spent for events that promote goodwill to the community.
  • Those spent for events whose proceeds go straight to a charitable organization, provided that the charitable organization is IRS certified.
  • Those spent for meal or entertainment that is essential to the business.
  • Those spent for meals of employees at the convenience of the employer or for any occasional event.

Entertainment Expenses vs Advertising & Promotion Expenses

 In case the nature of your business involves entertaining the general public to advertise or promote, your entertainment cost can be entirely written off as a business expense. If you own a children’s clothing store and you hire a clown to entertain at a community event, that is considered more of a promotion than entertainment.

So how do you write off your entertainment expenses?

As mentioned, you should be able to pass either the direct or associated test and prove your business purpose before you can deduct your business entertainment expenses. Aside from the purpose of your business, you should also be able to prove the following:

  • The amount of each expense
  • The date/time and location of the entertainment, and
  • Your relationship with the persons you entertained (are they your employees, business associates, clients, etc.?)

What if you fail to present a proof?

In that case, the IRS will not be able to consider it as a deductible expense and take it off your tax return. This is where record keeping comes in.

Recordkeeping

 When it comes to business expenses, you should be meticulous enough to keep all the necessary records to prove that your entertainment expenses can pass either the direct test or the associated test. The IRS usually finds contemporaneous records best. These records should be able to specify the business purpose of the entertainment event. A simple note stating your purpose will suffice. For instance, you can note on the bill from your caterer that the amount paid was used for the annual holiday party of your company.

 How much of your entertainment expenses are deductible?

In most cases, only 50% of business-related entertainment expenses are deductible. Depending on whether the entertainment expenses are reimbursed, this 50% limit is applicable to employees or their employers, as well as to self-employed individuals or their clients. The limit particularly applies to the expenses you have while–

  • Traveling away from home for business.
  • Entertaining clients at a place conducive for business.
  • Attending a business conference or meeting.

If you attend an event not related to your business while traveling for business, the amount you spend for that entertainment will not be deductible. The same rule applies if you attend an entertainment event while looking for a possible business location or while investigating a business. The entertainment expense in that case is not deductible since you haven’t started the business yet.

Remember also that any lavish or extravagant entertainment in any form is not deductible. Say you want to entertain your clients by buying a yacht, the IRS will not allow you to write off the amount you spent for buying that yacht simply because that is too extravagant.

 What if you are self-employed and is therefore neither an employee nor an employer?

 Based on the IRS law, entertainment expenses of self-employed individuals are not subject to the 50% limit if all of the conditions below are met:

  • The entertainment expenses are tied to your job as an independent contractor
  • You are provided an allowance or are reimbursed for the entertainment expenses related to the work that you perform, and
  • You are able to show enough proof or records of such expenses for your client or customer.

In every business, treating clients or employees to a meal or entertainment is a great way to build your business, and since it is a legitimate part of the business, it is subject to tax deductions. Knowing which of your entertainment expenses are fully deductible, not deductible or subject to the 50% limit is a must if you don’t wish to deal with troubles with the IRS.

Understanding the Complexities of Capital Gains Tax in India

A few years ago, Aarav inherited a parcel of land from his parents.  Since he lives in the city and has no plans of going back to his hometown, he decides to sell the land. He then uses the money to buy an apartment right in the heart of the city.  It took almost three years for Aarav to buy the apartment after selling his inherited property. He falsely assumes that there is no tax liability in his reinvestment. After some time, he finds out from a tax consultant or worse, from the tax authorities, that he will have to pay tax on the capital gained from the sale of his inherited property.

It may have occurred to Aarav that the property he received is not subject to tax. This is true. In India, any asset that is received as an inheritance is fully exempt from gift tax. So he’s not obligated to pay any tax upon receipt of the parcel of land from his folks.

But the sale of the asset is not exempted from tax. This is taxable under capital gains.

In India, it is not uncommon for taxpaying individuals like Aarav to inherit properties such as land or house from their families.  And just like what Aarav did, these individuals would sell the property and invest in another property at some point in time.

However, it is also common for many people in India to be unaware of tax laws regarding inherited properties like land and house, as well as the tax stemming from the sale of those properties. They would only know of the tax liabilities they have when notified by the tax authorities, or as in the case of Aarav, when informed by his tax consultant or a chartered accountant.

It is thus very important for individual taxpayers in India to know of these laws especially if they are to inherit a property from their families.

What is Capital Gains?

In the case of Aarav, he failed to realize that he had to pay the capital gains tax from the sale of the parcel of land that he disposed of.  By definition, capital gains is the profit that Aarav got when he sold the capital asset (in his case, the parcel of land) for a price higher that the purchase price.

Capital assets are property held in any kind by the taxpayer. It may be a parcel of land, a building, a house, or a vehicle. Leasehold rights, trademarks, patents and even jewellery may be considered as capital assets as well.  In certain cases, capital assets may include rights of management to any Indian company.

Thus, capital gains tax not only applies to the sale of an inherited house or parcel of land. It can also apply to the sale of a vehicle, patent, and jewellery.

Capital assets are classified into two – short-term capital asset and long term capital asset.

In Aarav’s case, the sale of the inherited land took him 35 months after the date of the transfer into his name. As such, it is considered short-term capital asset.

If he had disposed the property a month or so longer, it would have been treated as long-term capital asset.

Under the Indian tax laws, the following aren’t considered capital assets:

  • Stock in trade
  • Consumable stores or raw materials
  • Personal effects
  • 5 percent gold bonds
  • Gold deposit bonds
  • Special Bearer Bonds 1991
  • Agricultural land in a rural area. As of AY 2014-15, rural area is defined as any area outside the jurisdiction of a municipality having a population of 10,000 or more.

Calculating Capital Gains

Short-term capital gains and long-term capital gains are computed differently.

Long term capital gain is computed as the full value of consideration fewer expenditures incurred wholly in connection with the transfer of the capital asset. This includes brokerage, commission, and advertisement expenses, among others.  Indexed cost of acquisition and indexed cost of the improvement, if any, may also be deducted.

Full value consideration pertains to the amount that the seller agrees to get in exchange for his or her capital assets. It should be noted that capital gains is chargeable to tax in the year of the transfer.

t of acquisition pertains to the amount for which the capital asset was acquired by the seller. Cost of improvement, on the other hand, pertains to the expenses incurred to make improvements to the capital asset. However, all, improvements made before April 1, 1981 won’t be taken into consideration.

 

On the other hand,  short term capital gains is computed as the sales value of the asset less expenses incurred related to the transfer of the capital asset.  Cost of acquisition, or the purchase price of the capital asset, as well as cost of improvement, may also be deducted from the sales value of the asset.

 

Cost of acquisition pertains to the amount that any of the previous owners has paid to acquire for the property. Going back to Aarav’s case, let’s say that his grandfather was the original owner of the parcel of land. He had purchased it for Rs 20,000. This will be the cost of acquisition that Aarav can deduct to arrive at the short-term capital gains tax.

 

It can be said that calculation of long term and short term capital gains is basically the same. The only difference is that in calculating long-term capital gains, the cost of acquisition and improvement is indexed, or adjusted for inflation.

Short term capital gains on the sale of a property are taxable per slabs rates as applicable to the individual taxpayer. This means that the capital gains tax is payable at the same rate as the income tax of the tax payer.   In Aarav’s case, the capital gains would have been taxed at a rate of 25 per cent if he falls under the 25 per cent bracket.

On the other hand, long-term capital gains are taxable at a uniform rate of 20% plus surcharge and education cess.

Exemptions Under Income Tax Act

However there are exemptions on capital gains that can be applied as specified under certain sections of the Income Tax Act of 1961.

Going back to Aarav’s case, if he had used the proceeds arising from the sale of his inherited property, then he could have been exempt from paying capital gains tax.

Section 54, for instance, exempts sale of house property on the purchase of another house property. In this case, the capital gains arising from the sale of a house property is used in buying another house property.

The new property should have been purchased a year before the sale of the inherited property or two years after the sale of the property.

Going back to Aarav’s case, if he had bought the property he now has in the city within two years after he sold his inherited land, then he would have been able to apply for this exemption. Or, if he had bought the house a year before he was able to dispose of the parcel of land he inherited from his family.

Also, he could have been exempt from capital gains if he used the gains in the construction of the property that was completed within three years from the date of the sale of the inherited property.

It should be noted that under this section, only one house property can be bought or constructed using the capital gains to claim the exemption. The exemption can be nullified if the new property is sold within three years of its purchase or construction.

Investing in Bonds

Under Section 54EC, exemption is available when the capital gains from the sale of the first property are reinvested into specific bonds. These bonds are issued by the Rural Electrification Corporation and the National Highway Authority of India. Investment in these bonds should be up to Rs.50 lakhs.

The money that Aarav invested in bonds should be redeemed after three years. However it cannot be sold before the lapse of three years from the date of sale. Aarav should have invested the money he gained from the sale of his inherited land within six months after the sale of the property to have been able to claim this exemption.

The tax exemption is equal to the capital gain or to the investment, whichever is lower.  Transferring the bonds or taking a loan against them within three years is forbidden, though. It can result to the capital gain becoming taxable.

Investing in these bonds would yield a return of 5.5 per cent interest in a year.

Capital Gains Account

Aarav could have also invested the money that he had gained from the sale of his inherited property in a Capital Gains Account. This is specified under the Capital Gains Account Scheme. Aarav could have deposited the money in any public sector bank. The deposit can then be claimed by Aarav as exempted from capital gains. Moreover, he won’t have to pay any tax on it.

However, Aarav should have done this before the deadline for filing tax returns which usually is on July 1. The money deposited in the account should only be used in buying or constructing a residential house within the prescribed period.

There are two kinds of capital gains deposits in the market. One is a savings type account while the other is terms deposit. Any individual taxpayer can transfer money from one account to another by paying fixed penalties or charges in a bid to exempt his or her capital gains against tax.

In the savings deposit type of capital gains deposit, the money can be withdrawn as long as there is a declaration that the money will be for the construction or purchase of a house. The money will have to be used for the declared purposes within 60 days. Any unutilized amount will have to be re-deposited into the capital gains account as well.

As far as interest rates are concerned, capital gains deposit will have the same rates as those on regular savings and term deposits. There’s also tax for the interest earned. Proof of deposit has to be attached with the taxpayer’s income tax return.

In the event that the deposited amount is not fully used to buy and construct a new house at the end of the three-year period from the sale of the asset, the money in the account will be treated as capital gains.

Opting to open a capital gains account should be considered only as a stop-gap measure.  The individual taxpayer will eventually have to use the money to buy or build a house within a specified period.

Other Exemptions

There’s also an exemption specified under Section 54B of the 1961 Act. This specifies that short term or long term capital gains are tax exempt when the proceeds are used to purchase new agricultural land. The purchase should have been consummated within two years after the sale of the inherited property. Also, the agricultural land should not be sold within 3 years from the date of its acquisition.

Under Section 54G, exemption is also allowed if the gain is reinvested in acquiring a building or machinery in a rural area. There’s also exemption allowed if the gain is used in acquiring land, building, or machine in a Special Economic Zone as specified under Section 54GA.

Conclusion

The truth is that computing capital gains tax on the sale of a property, whether it is inherited or not, can be very tricky.  It is thus highly recommended that tax payers who acquire a property and then sell it later on consult a tax expert or chartered accountant.

As shown in the case of Aarav, he would not have been caught surprised and unaware of his tax obligations had he consulted a tax expert or accountant before he sold his property and bought a new house. This only underscores the need to get professional advice especially when dealing with real estate.

Understanding Depreciation For Taxes

Depreciation is a market term used to signify the fall in value of a commodity or a market in a bigger context. Generally, depreciation is observed over a period of time; and in commercial aspect, it is used to represent the fall in price of an asset over a fiscal year.

Depreciation is a method which allows income tax deduction for the taxpayer in order to claim the cost based on specific property. This acts as an annual allowance for devaluation, wear and tear or uselessness of a property.

The properties that can be categorized as tangible property, furniture, buildings, machinery, vehicles and other equipment other than land, all these properties are depreciable. Similarly, patents, computer software programmes and copyrights are also depreciable.

The Internal Revenue Service specifies properties that can be depreciated and how they can be depreciated. There are certain depreciation schedules for various types of assets as per IRS. Referring these schedules, you can know about the percentage of an asset’s value that you can deduct every year and for how many years. These depreciation deductions determine the asset’s recomputed basis when you sell the asset

You are required to use Form 4562, Depreciation and Amortization for reporting depreciation when filing a tax return. Form 4562 has six sections and you can get information on filling out each section by contacting your tax professional or searching online.

 Section 167

In US law book, the section 167 deals with depreciation tax deduction of commodities. If you are purchasing a property that you are going to use in some form of business activity or to make money from it, it is possible that you fail to subtract the complete business expense in the same year of acquiring the property. You need to spread the cost over a fiscal year and then deduct part of the cost every year. This fall in the cost of a business property is called depreciation.

 Repairs are immune to depreciation

Investments made on property to increase its life time are immune to depreciation. If you are spending some more money on repairs and adding new things to the property to increase its usefulness, then you can slow down the rate of depreciation.

The procedure of depreciation

In order to depreciate, the investment property and other business matters should be placed for Modified Accelerated Cost recovery System (MARCS). This method allows deduction for a larger amount during initial years and during later years, lower amount of deductions are done and both are compared through straight line methods.

Conditions required for allowing depreciation tax deduction for any property

  • The legal taxpayer must be the owner of property. Taxpayers also have the right to deduct tax regarding capital improvements for any property that he/she has taken on lease.
  • The property must be used by the taxpayer for business or any other activity that can produce income. In case of using any property for business and personal use, the taxpayer may reduce the depreciation depending upon use of the property only for business purpose.
  • The property for which depreciation and tax deduction is applied, must be useful for at least more than a year or two.

Under the following circumstances a taxpayer cannot depreciate his or her property, in case of property being disposed within the same year.  When equipments are used for building capital advancements, a taxpayer is only allowed to do so for equipments used during construction depending on the improvements. And certain terms and interests are also an issue.

Depreciation initiates only when the taxpayer provides the property for a trade or for business, after using it for the production or as a source of income. When the taxpayer fully recovers the cost of property, then the property becomes invalid for depreciation. Even if the taxpayer takes voluntary retirement from service, the above mentioned scenario is applicable!

 Things to know for proper depreciation tax deduction

  • Knowing the absolute method for depreciating your property.
  • Knowing your asset details well.
  • If the property falls under the listed property category.
  • If the taxpayer is electing for the expense for any part regarding the assets.
  • How depreciation is possible, based on the property.

179 deductions for deprecation

As per this section, one can deduct a cost for the limited account for a certain amount of depreciable property, only if you have placed it for service.  This kind of deduction is called section 179.  In 2013, the maximum amount that could be deducted was $500,000. However, higher limits are also applicable but it depends upon the asset.

The limitation is reduced depending upon the amount, and the cost of property offered for the service during tax year goes above $2 million. Publication 946 clearly states about regulations and details about properties which are applicable for deduction, its limitation, and how one can place the deduction at the right time.

Traditionally, the capital assets and their deduction is based upon casual fact that vehicles, buildings, roads and similar improvements have a life for more than one year. But relying on the theory and facts, they get paid out of the savings brought together for several years.

Taxpayer should keep in mind that the land property does not fall under the category of depreciation, simply because it never wears out! The bookkeeping method is mainly used for reflecting the operations, which are an on-going procedure for the current year.  Specifically for this obvious reason, inflows about capital investments and depreciation are not reflected, same for income as well.

Should you take depreciation ?

With the proper guidance and knowledge about depreciation tax deductions, one can save a good deal of money from tax. Several methods are available for calculating depreciation tax deductions based on the property. But it should be kept in mind that there are also some limitations in it.For example, when you sell an asset to earn profit and have made depreciation deductions on it, depreciation recapture is applied to impose tax on the profit or gain from its sale. Since you have already benefitted  from  depreciation deduction from ordinary income, any gain you get, up to the depreciation sum, is required to be entered as ordinary income to make up for the previously made deduction.

Understanding Depreciation For Tax Filings

The field of commerce is vast and people tend to analyse every single monetary attribute by using the definition used in this field. Depreciation is a market term used to signify the fall in value of a commodity or a market in a bigger context. Generally, depreciation is observed of a period of time and in commercial aspect we use it to represent the fall in price of an asset over a fiscal. It also signifies the fall in a company’s revenue or in other things related to the business of the company. There are various reasons which foster this kind of a situation in the market and false inflation is one among them. Various market commodities like real estate, oil and precious metals can face a steep fall in their market price during recession.

Factors behind value depreciation in the market:

A recession is an economic scenario where a local or global market suffers from fall in the value of different commodities, and there are multiple situations that can trigger this. In US law book, the section 167 deals with depreciation for commodities. If you are purchasing a property that you are going to use in some form of business activity or to make money from it, it is possible that you fail to subtract the complete business expense in the same year of acquiring the property. You need to spread the cost over a fiscal and then deduct part of the cost every year. According to the countries law book, this fall in the cost of a business property is called Depreciation.

Repairs are immune to depreciation.

Investments made on the property to increase its life time are immune to depreciation. If you are spending some more money on repairs and adding new things to the property to increase its usefulness, then you can slow down the rate of depreciation.

The procedure for Depreciation

In order to depreciate, the investment property and other business matters should be placed for Modified Accelerated Cost recovery System (MARCS). This method allows deduction for a larger amount during initial years and during later years, lower amount of deductions are done and both are compared through straight line methods.

 Brief description about Depreciation

Depreciation is a method which allows income tax deduction for the taxpayer in order to claim  the cost based on specific property. This acts as an annual allowance for devaluation, wear and tear or uselessness of a property.

The properties that can be categorized as tangible property, furniture, buildings, machinery, vehicles and other equipments other than land, all these properties are depreciable. Similarly, patents, computer software programmes and copyrights are also depreciable.

Conditions required for allowing deduction and depreciation for any property

  • The legal taxpayer must be the owner of property. Taxpayers also have the right to deduct tax regarding capital improvements for any property that he/she has taken on lease.
  • The property must be used by the taxpayer for business or any other activity that can produce income. In case of using any property for business and personal use,  the taxpayer may reduce the depreciation depending upon use of the property only for business purpose.
  • The property for which depreciation and tax deduction is applied, must be useful for at least more than a year or two.

Under the following circumstances a taxpayer cannot depreciate his or her property, in case of property being disposed within the same year.  When equipments are used for building capital advancements, a taxpayer is only allowed to do so for equipments used during construction depending on the improvements. And certain terms and interests are also an issue.

Depreciation initiates only when the taxpayer provides the property for a trade or for business, after using it for the production or as a source of income. When the taxpayer fully recovers the cost of property, then the property becomes invalid for depreciation. Even if the taxpayer takes voluntary retirement from service, the above mentioned scenario is applicable!

 Identifying proper items for apt depreciation

  • Knowing the absolute method for depreciating your property.
  • Knowing your asset details well.
  • If the property falls under the listed property category.
  • If the taxpayer is electing for the expense for any part regarding the assets.
  • How depreciation is possible, based on the property.

179 deductions for deprecation

As per this section, one can deduct a cost for the limited account for a certain amount of depreciable property, only if you have placed it for service.  This kind of deduction is called section 179.  In 2013, the most amounts that could be deducted were $500,000. But higher limits can also be applicable but it depends upon the asset.

The limitation is reduced depending upon the amount, and the cost of property offered for the service during tax year goes above $2 million. Publication 946 clearly states about regulations and details about properties which are applicable for deduction, its limitation, and how one can place the deduction at the right time.

Traditionally, the capital assets and their deduction is based upon casual fact that vehicles, buildings, roads and similar improvements which have a life for more than one year. But relying on the theory and facts, they are getting paid out of the savings brought together for several years. Taxpayer should keep in mind that the land property does not fall under the category of depreciation, simply because it never wears out! The bookkeeping method is mainly used for reflecting the operations, which are an on-going procedure and for the current year.  Specifically for this obvious reason, inflows about capital investments and depreciation are not reflected, same for income as well.

 With the proper guidance and knowledge about depreciation, one can save a good deal of money from tax. But it should be kept in mind that, there are also some limitations in it and it comes under the Internal Revenue Service, which specifies about properties and how they can be depreciated. Several methods are available for calculating depreciation based on the property.