Something that wears out, gets used up, or loses its value over time.Used in the business or held to produce income.The asset needs to meet three requirements in order to be depreciated. This concept of spreading out a deduction over the life of an asset is called depreciation. But if you purchase an asset for your business that you will use beyond the current tax year, you usually are required to spread out the deduction over the asset's expected life. With an ordinary business expense, you typically deduct the entire cost of the purchase in the tax year of the expense. If your business uses the cash-basis method, you can't deduct a worthless receivable as a bad-debt expense because you don't count income until it is received and would not need a deduction to offset the amount not included in your income.To qualify for this tax-saving deduction, though, you must use the accrual method of accounting, which entails booking income when a product or service is sold, for example.It's also possible to claim a bad-debt deduction if someone doesn't pay you for work you performed or products you sold. ![]()
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