How to Calculate Depreciation on Schedule C

You stop depreciating business equipment once you stop using it.
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If you're self-employed, you report your business income and deductions on the IRS's Schedule C form. One business deduction you can take is depreciation on property you use in your business -- such as computers, vehicles and office furniture -- that has a useful life greater than a year. Depreciation is a write-off reflecting loss of value from aging. The IRS guidelines for claiming depreciation are in Publication 946. However, you may be able to take the entire value of the business property off in one year under the IRS's Section 179 rule.


Depreciation Systems

To calculate depreciation correctly, you have to choose between the IRS's General Depreciation System and Alternative Depreciation System. In most cases you use the GDS. However, some property -- like property used mostly outside the United States -- has to be depreciated using the alternative system.

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Classifying Property

If you use GDS, you have to classify your property. Computers are in the five-year class, for instance, while office furniture is in the seven-year class. If you buy a new desk, for example, you'd depreciate the value over the following seven years. There are also different conventions used to establish when depreciation for the first year starts. The half-year convention, for instance, assumes depreciation starts at mid-year.


Calculating Depreciation

Publication 946 includes tables to help you figure depreciation. For instance, on a five-year property under the half-year convention you deduct 20 percent of the value the first year. On a $2,000 piece of equipment, that's $400. The second year you deduct 32 percent, the third year it's 19.2 percent. Given the different systems and conventions, it may take a tax pro to figure which ones you can use and which gives the best tax break.


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