Discussion in 'Growing and Managing a Business' started by KKAPADIA, Oct 1, 2014.


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    Sep 7, 2014
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    I never understood how depreciation works and why would anyone want to list it. I understand that you get to claim depreciated value as an expense, and I understand why...but why would anyone want to do it? I'm thinking in lines of more expenses equals less profit...thus less money you take home as an owner. The only reason I can think of is to drop your gross income to a low number and thus pay less money to taxes. I'm sure this depends on several factors such as, how big the business is, kind of business, company structure, etc....but am I correct in assuming that listing depreciation isn't always a good idea?

    i.e. you buy a tractor for $1,000.00 in 2000 and list it as an expense on your P&L. You know it depreciates $100.00 each year and you plan to sell it in 2007 for $300.00. Following that logic why would you want to add an extra $100.00 each year as an expense on your P&L that will eat away at your net income? That's a $700.00 loss versus a $300.00 gain on top of a $1000.00 original "loss".

    I know I'm missing something crucial here. I'm confused??? Please help?

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