Straight line: the default
(Cost − salvage) ÷ useful life. A 25,000 machine with 2,000 salvage over 5 years depreciates 4,600 a year — predictable, easy to audit, and what most small businesses use.
Double declining: front-loaded
Twice the straight-line rate applied to the remaining book value each year. It matches depreciation to the reality that equipment loses value fastest when new, and it is common for technology and vehicles.
Tax versus book depreciation
- Book depreciation follows accounting rules (GAAP)
- Tax depreciation may use MACRS or bonus depreciation — often far faster
- Section 179 lets small businesses expense qualifying equipment immediately, up to annual limits
- Keep two schedules if they differ; reconcile at year end
Why it matters for pricing
Depreciation is a real cost of production even though no cash leaves the account monthly. Excluding it from unit cost overstates margin on asset-heavy businesses — a laser cutter or delivery van has to pay for itself through the prices you set.
Frequently Asked Questions
What useful life should I use?
IRS tables (MACRS) set tax lives; management can choose shorter lives for internal reporting if justified.
Is land depreciable?
No — land does not depreciate; buildings do.
What is bonus depreciation?
An accelerated allowance letting businesses deduct a large share of an asset's cost in year one.
Assumptions & disclaimer
Results are estimates for planning. Fee schedules, tax brackets and deduction limits change; confirm current figures with the marketplace, the IRS or a qualified accountant before making decisions. Nothing here is financial, tax or legal advice.
Privacy & Your Data
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