How a Depreciation Review Now Can Protect Your Business
As an important follow-up to our previous blog post, “How to Make Your Bookkeeping Ready Now for the Last Quarter of 2026,” in this new blog post, we’ll reveal why a depreciation review before year-end is crucial for your business.
Keep reading to learn more.
Depreciation: What and Why
First, what is depreciation? Depreciation refers to a physical asset’s loss of value over time rather than in one lump sum in the year they are purchased. These assets wear out over time, and depreciation matches that reality.
Next, why is properly recorded depreciation crucial for managing your business books effectively?
Impacts the business's tax liabilities and financial statements.
Optimizes tax savings and prevents overpaying on taxes.
Improves cash flow management; and
What Can Legally Be Depreciated?
The IRS lays out four criteria for an asset to qualify for depreciation, such as:
Your business owns it.
You use it for business/income-generating purposes.
The asset has a determinable useful life; and
Depreciation: Tangible Business Assets Allowed
Cars, trucks and vans.
Computers, servers, technology equipment and purchased business software (not subscriptions).
Office furniture/fixtures.
Machinery/manufacturing equipment.
Commercial buildings (but not the land they reside on)
Learn more at the Complete Guide to Depreciation for Small Business Owners
Why a Year-end Depreciation Review?
So why is a depreciation review crucial for your business before December 31?
A depreciation review can:
Uncover missing deductions.
Allow the correction of outdated records; and
Help you make informed purchasing decisions.
Below are the recommended 4 steps for your year-end depreciation review.
Review Your Current Fixed-Asset List and ensure they are recorded correctly. Also, remove any assets that were sold, discarded, traded in, or are no longer in use.
Identify Major Purchases Made This Year with invoices and purchase dates, and distinguish depreciable assets from repairs, supplies, and routine expenses.
Consider Purchases Planned Before December 31 and evaluate whether buying equipment before year-end could provide a tax benefit. Remember, assets generally must be “placed in service,” in other words, ready and available for business use, to qualify for depreciation.
Meet With Your Bookkeeper and Tax Professional ~ Reconcile asset accounts and supply accurate records before tax season.
~ Review cash flow, projected income, and future plans.
~ Explore available tax-saving depreciation options/strategies.
~ Remember, the largest immediate deduction isn’t always the best long-term choice.
Bottom Line: Need Help with Depreciation?
Taking time to review your depreciation now can provide clarity, optimize tax savings, improve cash flow, and keep you compliant with the IRS. Don’t miss out on these annual tax deductions for your business!
Need help deciding which depreciation strategy is best for YOUR business?
We can help; you don't have to do it alone!
Piece of Mind Bookkeeping is here to help, not judge; so reach out to us today!
Which depreciation strategy is best for YOUR business?
Another reason I look at depreciation is the tax benefit it provides, which helps business owners save for equipment replacement over the years.
About the Author
Steven Thompson
Founder, Piece of Mind Bookkeeping
Steven brings over a decade of experience in bookkeeping, tax preparation, and financial advisory services. He specializes in helping small businesses (particularly in the pet services and veterinary space) simplify finances so they can grow with confidence.
When he’s not balancing budgets, Steven explores his adopted country of Brazil, plays with his dogs, or works on personal development, such as learning yoga.
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