5 ms·
Im curious why depreciation has tax implications, what was the intention
by photonbeam 3y ago
Im curious why depreciation has tax implications, what was the intention
- friendzis 3y agoEqualization of tax burden and transparency in reporting. To put it very simply: when you buy a thing you spend money and gain value. No change in books. Then after some time you sell said thing for generally less and experience sharp loss. Think of P&L report of a public company. Such maneuver will artificially increase profits during ownership and deflate, potentially up to incurring book loss, them in period of sale. Depreciation/amortization simply spreads this loss of value over the period of ownership. Tax implications are mostly incidental and come from reporting.
- nprateem 3y agoIt's because the 'value' of something (eg a machine) is 'used up' over time until eg the machine eventually wears out and needs replacing. Depreciation reflects that the asset's value is used up over time by allowing the owner to deduct part of its value each period to reflect the reduction in asset value in their financial statements.