1. What is Tax Depreciation?

Tax depreciation is the deduction allowed by tax authorities for the wear and tear of business assets over time. It reduces taxable income by accounting for asset value reduction.

2. How Does the Calculator Work?

The calculator uses the simple depreciation formula:

Where:

• \( Cost \) — Original cost of the asset (USD)
• \( Rate \) — Depreciation rate as percentage

Explanation: The calculation determines the annual depreciation expense based on the asset's cost and applicable depreciation rate.

3. Importance of Depreciation Calculation

Details: Accurate depreciation calculation is crucial for tax reporting, financial statements, and business planning. It affects taxable income and asset valuation.

4. Using the Calculator

Tips: Enter the original cost of the asset in USD and the applicable depreciation rate as a percentage. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between tax and book depreciation?
A: Tax depreciation follows tax laws while book depreciation follows accounting standards (GAAP/IFRS). They often use different methods and rates.

Q2: What are common depreciation methods?
A: Straight-line (equal annual amounts), declining balance (higher early years), and units of production (based on usage) are common methods.

Q3: How do I determine the depreciation rate?
A: Rates are typically specified by tax authorities (e.g., MACRS in the US) based on asset class and recovery period.

Q4: Can land be depreciated?
A: No, land is not depreciable as it doesn't wear out. Only improvements to land (buildings, etc.) can be depreciated.

Q5: What's the salvage value in depreciation?
A: The estimated residual value at end of useful life. Some methods account for this, while others depreciate to zero.