Accelerated depreciation.
In plain English
Accelerated depreciation front-loads the expense of a long-lived asset, writing off more of its cost in the first years of service and less later on. Common methods include declining balance and sum-of-the-years-digits, and tax systems often require or allow a version of this approach. The total amount deducted over the asset's life is the same as straight-line, so only the timing changes. Front-loading lowers taxable income sooner, which pushes tax payments later and helps near-term cash flow. That timing gap between book and tax depreciation is what creates deferred tax items on the balance sheet.
01Why it matters
For a business buying equipment, taking the deduction sooner means keeping cash longer, and knowing the total does not change keeps you from mistaking a timing shift for a tax saving.
02The math, step by step
Say a 30,000 dollar machine has a five-year life. Straight-line would be 6,000 dollars a year. Double-declining balance takes 40 percent of opening book value, so year one is 12,000 dollars and year two is 7,200 dollars (40 percent of the remaining 18,000). Both methods still total 30,000 dollars.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
Accelerated methods do not deduct more overall. They deduct the same cost on a different schedule. The benefit is the time value of paying tax later, not extra deductions, and later years carry a smaller expense as a direct result.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
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