What is the difference between a business depreciation and a business deduction?

Question

I am purchasing a $2000. set or laundry machines for my rental business which will be used very little for personal use, and my tax accountant said we could depreciate 75% and I don't know what that means to me at tax time.

Answer 1

Depreciation is a type of deduction.

Answer 2

Depreciation is a means of taking the tax deduction for an item used in business over a period of time (normally the expected useful live of the item).

Answer 3

These are terms, though both apply to the financial aspect of business, they do not associate with one another.

A deduction, is a dollar amount that you or your accountant will take into consideration at tax time, in order to give you a break on expenses.

  In other words, you may be able to take a tax "deduction" for phone expenses, if you operated an office from your home.

.. a "depreciation," is the amount of money, your business (or car, or home) is valued LESS now, than it was one fiscal year ago.

  In other words, the minute you bought a Computer, it depreciated, the moment you took it out of the box.  (sad but true) =)

  Some things, simply depreciate, just by seeing the light of day..

Answer 4

Business deductions are immediate expenses or cash outlay.

Depreciation is a calculated periodic devaluation of an asset, such as machinery, fixtures and equipment.

This is an average of the cost, devalued over a period of time such as 5 years.

The depreciation is entered as a monthly expense, BUT is not a cash outlay.   The original purchase was cash out, but the asset offsets that, until depreciation is taken each month.

At the end of the period, 5 years, any cash value remaining, such as it being sold, is recovered cash  from sale of asset.

This would be true at any point in the interim that the asset may be sold.  If it is sold for less than the book value, then additional depreciation must be taken, and the cash is recovery from sale of assets.

This is done for two reasons.

The monthly expense of Depreciation is actually recovered in the selling price.  Like any expense it must be part of operating expenses.

The other reason is at some point the equipment must be replaced, and the accumulative recovery of the expense from sales, should be a cash reserve to do so.