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Categories: General Tax Terms

Accelerated Depreciation refers to a method of calculating depreciation that allows an asset to lose value at a faster rate in the earlier years of its useful life. This approach contrasts with the straight-line depreciation method, where the asset’s value is deducted evenly over its useful life.

With accelerated depreciation, businesses can reduce their taxable income more significantly in the initial years after acquiring an asset. This is beneficial as it provides tax relief sooner, improving cash flow and allowing for reinvestment in the business. Common methods of accelerated depreciation include the Double Declining Balance method and the Sum-of-the-Years’-Digits method.

For example, if a company purchases equipment for $10,000 with a useful life of five years, using the Double Declining Balance method, it may deduct a larger portion of the asset’s cost in the first year, providing a greater tax deduction compared to using the straight-line method.

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Alternative Meanings:
  • Accelerated Depreciation

    Accelerated Depreciation refers to a method of allocating the cost of a tangible asset over its useful life at a faster rate than traditional straight-line depreciation.

    Under this approach, larger deductions are taken in the early years of an asset's life, decreasing over time. This is beneficial for businesses as it can lead to reduced taxable income in the initial years of an asset's use, thus improving cash flow.

    Common methods of accelerated depreciation include the Double Declining Balance method and the Sum-of-the-Years' Digits method. For example, if a company buys machinery for $10,000 with a useful life of 5 years, using the Double Declining Balance method would allow it to deduct a larger portion of the cost in the first year compared to the straight-line method, where the deduction would be equal each year.

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