Tax depreciation: definition and calculation

If you are an entrepreneur, you probably know that corporation tax can be deducted. Tax depreciation allows you to reduce your taxes by taking into account the depreciation of some of your assets. This depreciation must then appear in your accounts. If you encounter difficulties in this area, know that you can help yourself with accounting management software such as Comptastart .

But first, what is tax depreciation? What are the differences between the different types of depreciation? We go around these questions.

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MINI-SUMMARY:

What is tax depreciation?

Decreasing, linear, derogatory tax depreciation: what are the differences?

Derogatory depreciation: what calculation to perform?

What is tax depreciation?

First of all, we must understand the term “ amortization” . It is a concept of business accounting that allows us to see that an asset has seen its value diminished due to use, time or any other reason.

Depreciation is used to deduct, over a certain period of time (the depreciation period), part of the value of a property recorded as fixed assets (investments in goods for the long term). In other words, the tax depreciation takes into account the impoverishment of the company when a good, acquired for the long term, loses its value.

The depreciation period corresponds to the duration of use or use of an asset. Thus, it varies according to the type of property: 10 years for furniture, 4 to 5 years for vehicles, 3 years for telephones, etc.

Depreciation can be apprehended from an accounting point of view: we will then speak of accounting depreciation . But the depreciation can be seen according to the tax rules: we will speak of tax depreciation .

The difference between tax depreciation and accounting depreciation lies mainly in the rules that apply to them. Indeed, the accounting rules are not the same as the tax rules with regard to:

the depreciation period  : in accounting, the actual duration of use of the asset is taken into account, whereas in taxation, it is the duration of use (often shorter);

the residual value  : in the context of straight-line depreciation, in accounting, the resale value of an asset (residual value) is deducted from the depreciable basis. In taxation, this is not possible.

Decreasing, linear, derogatory tax depreciation: what are the differences?

Along with the distinction between tax and accounting depreciation, there are other distinctions.

Linear tax depreciation  : the asset is depreciated in a constant manner throughout the normal period of use. Each year, its depreciation is the same over its amortization period.

Degressive tax depreciation : the depreciation of the fixed asset is significant during the first years of use and becomes less and less significant in the following years.

Derogatory depreciation (or accelerated depreciation ): it is regulated only by tax law. This is a purely tax system aimed at encouraging certain investments. Indeed, it allows a company to benefit from a significant deduction on fixed assets, but which only applies for a short period (12 or 24 months depending on the type of asset).

Good to know: for certain depreciable assets, you have the choice between the linear or decreasing depreciation regime.

If this subject interests you, you can also consult our sheet on the amortization of goodwill .

Derogatory depreciation: what calculation to perform?

Derogatory depreciation is a temporary derogation with the aim of accelerating the depreciation of specific assets. Its calculation then depends on the form that this derogation takes. However, this derogation can take two different forms:

the possibility of depreciating on a declining balance an asset which is supposed to be depreciated on a straight-line basis;

the possibility of reducing the depreciation period of certain fixed assets.

Good to know  : exceptional depreciation must appear on the liabilities side of the balance sheet in the regulated provisions. Conversely, normal depreciation must be subtracted from the value of the depreciated asset.

If you have an SCI, know that it is also possible to make depreciation in SCI .

So you know the essentials of what to remember about tax depreciation!