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Why Should You Use Accelerated Depreciation for your Fixed Assets?

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Accelerated depreciation refers to any one of several methods by which a company, for ‘financial accounting’ and/or tax purposes, depreciates a fixed asset in such a way that the amount of depreciation taken each year is higher during the earlier years of an asset’s life.

Financial Accounting Purposes: Accelerated depreciation is generally used when an asset is expected to be much more productive during its early years, so that depreciation expense will more accurately represent how much of an asset’s usefulness is being used up each year.

Tax Purposes: Accelerated depreciation provides a way of deferring corporate income taxes by reducing taxable income in current years, in exchange for increased taxable income in future years. This is a valuable tax incentive that encourages businesses to purchase new assets.

Because of the time-value of money, there is a significant tax benefit to your company for using accelerated depreciation methods. By freeing up cash flow and reducing the effective cost of the asset, it encourages you to buy more equipment. Accelerated depreciation also acts as a form of debt-free leverage, by essentially borrowing money, tax-free and risk-free, from the government.

Governments generally provide opportunities to defer taxes where there are specific policy reasons to encourage an industry. For example, governments have increased accelerated depreciation methods in time of economic stress (in particular, the US government passed laws after 9-11 to further accelerate depreciation on capital assets).

If you’re interested in learning how to properly manage your fixed assets with Microsoft Dynamics® GP 2010, call us at 888-313-0647. Vertical Solutions focuses on the sales, implementation and support of Microsoft Dynamics GP.  This solution is designed to help mid-sized organizations optimize work flows, provide access to timely and relevant information, reduce end user training time and make the organizations more efficient and profitable. Our team of certified consultants has years of experience mapping client requirements to system implementations and results.

By Vertical Solutions – Pennsylvania Microsoft Dynamics GP Partner

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