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To: Gvl_M3

I don't understand. How is deprecitation a repeat purchase of land. It is merely tax avoidance isn't it?


117 posted on 08/23/2005 10:37:46 AM PDT by groanup (shred for Ian)
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To: groanup
I don't understand. How is deprecitation a repeat purchase of land. It is merely tax avoidance isn't it?

I'm not an accountant, so I don't understand it either. All I know is that if we purchase a car for $50,000, we pay that at the time of purchase. Then, next year we have to pay a depreciation amount of $10,000 (using a 5 year depreciation). And again for the next 4 years. These are dollars that come out of our budget to purchase more vehicles. As for the land, we have to pay depreciation on the upgrades that we do (i.e. pavement, buildings, etc.)

The reason we do this is because the IRS requires us to. Yes, it is funny money, but tell my manager that I need to spend $10,000 this year on something and he will not be able to because I'm having to pay depreciation.

Quick link that I found:
http://www.businesstown.com/accounting/basic-depreciation.asp

The concept of depreciation is really pretty simple. For example, let’s say you purchase a truck for your business. The truck loses value the minute you drive it out of the dealership. The truck is considered an operational asset in running your business. Each year that you own the truck, it loses some value, until the truck finally stops running and has no value to the business. Measuring the loss in value of an asset is known as depreciation.

Depreciation is considered an expense and is listed in an income statement under expenses. In addition to vehicles that may be used in your business, you can depreciate office furniture, office equipment, any buildings you own, and machinery you use to manufacture products.
135 posted on 08/23/2005 11:38:22 AM PDT by Gvl_M3
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To: groanup; Gvl_M3

Depreciation 101

From Gvl M3
"what the accountants have shown, our biggest portion of our capital budget is the depreciation of this land. Why do we have to "PAY" twice for the land"

From groanup:
"I don't understand. How is deprecitation a repeat purchase of land. It is merely tax avoidance isn't it?"

Depreciation is neither a repeat purchase or a tax avoidance. If you pay $10,000 cash today for a building and depreciate it for $1,000 a year over a ten year period on your income tax, you are simply allocating the $10,000 over ten years you use it so you match revenues with expenses. Also, land is not depreciable. You can only depreciate buildings, equipment and other things that wear out.

And average Americans understand our current tax system?

woodbeez


513 posted on 08/24/2005 8:51:22 PM PDT by woodbeez
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