Depreciation of Assets - Employees Not Included
An important consideration that is very often overlooked is the fact that if you depreciate a business asset and then later sell that asset you may be subject to what are known as recapture rules that could trigger a gain on the sale of the asset and corresponding tax due on that sale. For this reason it’s a good idea to discuss sales of business assets with your tax consultant beforehand to do appropriate tax planning related to potential gain due to depreciation recapture.
Depreciation is for tangible assets. Tangible assets are items with physical form generally that you can touch and see. For example a desk is tangible but a contract value or the value of an agreement (covenant) not to compete is intangible and therefore it is amortized not depreciated and subject to amortization rules.
Over the years I’ve often wondered if some employers actually think that their employees are depreciable assets. While I do believe that good employees are the most valuable asset of any business, they are not owned and therefore should not be depreciated. By this I mean that when employers overwork but under value and under pay their employees they are in effect using up their useful lives too quickly. Employee Burnout is an example of what happens to your assets when they are over depreciated too quickly. You end up with valuable assets devalued by making poor decisions related to depreciation and a lack of appropriate long term business planning. Clearly proper care and treatment of all business assets gives an employer the best possible value for their business investments.
As always I hope you are enjoying Tax Facts on the Taxing Subject of Taxes!
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