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Depreciation - Phase 3 Discussion Board ACCT618-1001B-01...

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Phase 3 Discussion Board ACCT618-1001B-01 BLC purchased a $425,000 piece of equipment in January 2008 that was put in to service by the company in May of 2008. This equipment is considered to be eligible for MACRS (Modified Accelerated Cost Recovery System) as a five year property meaning that this equipment is deemed by the IRS to be depreciable over five years. BLC would like to fully recover their cost or basis in this equipment as quickly as possible and would like to take the maximum deduction possible for depreciation in 2008, but there are situations in which it would not be beneficial for BLC to take the maximum allowed depreciation deduction. To determine the maximum deduction, the depreciation will have to be calculated for 2008 using varying depreciation methods as well as determining the maximum depreciation allowed for companies that operate in a qualified enterprise zone. In addition to knowing the depreciation for 2008 it would be beneficial to determine the tax benefits if any and the present value of any tax benefits for the full five years. The present value will vary with differing depreciation methods. Generally speaking, BLC could not deduct the equipment’s entire cost in one year if the property is said to have a useful life that expands beyond one tax year, it would have to be depreciated instead. BLC can use depreciation as a tax deduction to recover the cost of the equipment that the company put into service in May of 2008. Depreciation can be thought of as an annual allowance for wear and tear on the equipment. BLC can use depreciation until the entire cost of $425,000 has been recovered or until the equipment is no longer being used by BLC whichever comes first (A Brief Overview of Depreciation, 2010). However, BLC could elect under Code Section 179 to recover all or part of the equipment’s cost up to a certain limit in the year in which the equipment was put into service. MACRS is in most cases the proper method for most businesses to use when depreciating assets (Topic 704 - Depreciation, 2009).
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BLC could also choose to use the straight line method in determining the equipment’s yearly depreciable amount. I will further discuss each of the above mentioned depreciation methods throughout the course of my discussion on depreciation. This discussion will give BLC the low lights on its options for depreciating the newly purchased equipment. Depreciation is a complex topic; in fact the IRS devoted Publication 946 to this topic. Publication 946 gives over one
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