Nobody starts a small business thinking about depreciation. You buy, say, a delivery van, you expense it, done. Except that isn't how it works. The IRS says if the asset lasts more than a year, you spread the cost over its useful life.
For example, buying a $3,000 workstation might seem like a simple upfront business expense. However, tax compliance guidelines like MACRS (Modified Accelerated Cost Recovery System) and Section 179 deductions require a structured approach to asset capitalization to ensure correct tax filings.
Here's the short version. Depreciation matches expenses to revenue. A $25,000 machine that lasts five years should cost $5,000 a year, not $25,000 in year one.
The Three Methods
Straight-line is the default. Cost minus salvage divided by useful life. Same amount every year. Predictable. Good for buildings and furniture.
Declining balance front-loads depreciation. Bigger deduction in year one, smaller later. Good for computers and vehicles.
Double-declining is declining balance at double the rate. Biggest possible deduction in year one. Aggressive. Use our Depreciation Calculator to compare all three.
Which One?
Want simplicity? Straight-line. Want to reduce taxes now? Accelerated method. Not sure? Compare them in the Depreciation Calculator with your actual numbers.
Bottom Line
Use the calculator to compare methods, then talk to your accountant about your tax strategy.
Frequently Asked Questions
Business depreciation is an accounting method that allows you to strategically spread the cost of a major capital purchase (like heavy equipment, vehicles, or real estate) over its projected useful life, rather than taking a massive, single-year hit to your immediate cash flow and profitability.
Section 179 allows small businesses to immediately deduct the full purchase price of qualifying equipment or software in the very first year it is placed into service. For the 2026 tax year, this deduction is capped at a generous $1.16 million, significantly lowering immediate tax liabilities.
Bonus depreciation is a tax incentive that allows businesses to immediately deduct a substantial percentage of the purchase price of eligible assets in the first year. It is highly beneficial for front-loading tax savings on assets that typically follow standard 5-to-7-year depreciation schedules.
Quick Answer
Business depreciation allows you to spread the cost of a major asset over its useful life, reducing taxable income each year. For 2026, the key methods are: Section 179 (deduct up to $1.16M in equipment costs in year one), Bonus Depreciation (60% of cost in year one under current phase-down), and MACRS (5-7 year schedules for most equipment). A $50,000 machine using Section 179 saves approximately $12,500 in taxes (25% bracket) in year one alone. Use the BizCalcLab Depreciation Calculator to compare methods and maximize your tax savings.