Whether it's a vast list of inventory, company cars or even the business building itself, assets will typically depreciate in value over time. While many big conglomerates will be happy to accept this as fact, and even have money to spare for upgrades, small businesses simply don't have the same luxuries.
Fortunately, the New Zealand government has a number of tax incentives in place which allow smaller enterprises to claim for any wear and tear on their assets.
In the simplest of terms, in the eyes of the Inland Revenue Department (IRD), depreciation allows a deduction of expenditure which takes into account the stresses and strains that certain business items face over time.
Bigger purchases, more reward
By claiming depreciation, the company can offset the initial costs over a number of years. This is ideal for small businesses looking to make bigger purchases such as computers, the aforementioned company vehicles or even larger office equipment.
When calculating depreciation on any item, there are two critical pieces of information to keep in mind. Firstly, the exact date that the company acquired the asset is needed as this determines the specific returns that are available.
Secondly, the tax category that the asset in question falls into is also required by the IRD. For example, items that have longer life spans may go on to offer the biggest reward from a tax perspective.
If all of this sounds too good to be true, there is a slight catch. Not all assets are applicable.
For example, both land and lower value items will not be considered by the IRD. However, there are still a number of benefits for small businesses who are ready and willing to claim depreciation against their purchases.
A complex process
However, the process of calculating depreciation can quickly lead to mistakes when attempted without sufficient knowledge. It's typically good practice to keep a detailed list of the company asset register, which can then be passed onto an experienced accountant if needs be.
While depreciation is a relatively complex subject, it is made simpler once all of the applicable financial information falls into line.
Similarly, CashManager from Accomplish makes it easy to assess company capital at a glance, and ultimately budget for any cost savings that could be made thanks to the small business tax benefits of depreciation.