There’s a lot of reporting lately about what Donald Trump has and is saying. But for those of us in the tax business he brought up a topic during the second debate that is near and dear to our hearts – depreciation! In fact he uttered the magic word no less than three times. While we here at Depreciation Guru talk about depreciation often and even have a section of our website dedicated to it (What Is Depreciation?) we don’t generally hear much about it outside our niche of the business world. However, with 80 million viewers tuning in, it could be our moment in the sun! Peter J Reilly in an article on Forbes tells us more.
In answer to Anderson Cooper’s question on how many years he has avoided paying federal income tax, Trump responded
No, but I pay tax, and I pay federal tax, too. But I have a write-off, a lot of it’s depreciation, which is a wonderful charge. I love depreciation.
I’m going to give you a little elementary accounting, which you can skip if you want, but it is important. Trump’s refusal to be bound by elementary accounting, which as a graduate of Wharton he must understand, is the source of much of his success.
The fundamental accounting equation is assets (the stuff you own) equals liabilities (the amount you owe) plus equity (the net of the two, which might be negative). Every transaction has two sides to it – a debit and a credit. They need to be equal.
And that brings us to depreciation, the accounting concept that Trump loves so much. Besides his expression of love last night, depreciation is featured much in Trump: The Art of the Deal
…..I don’t have to please Wall Street, and so I appreciate depreciation. For me the relevant issue isn’t what I report on the bottom line, it’s what I get to keep.
Back to elementary accounting, bottom line is “net income”, the amount that is closed to equity at the end of the year for both your tax basis balance sheet and your GAAP (generally accepted accounting principles) balance sheet. GAAP is what gets reported to investors. And tax basis is what goes to the IRS. If you are really nerdy, you will read the notes to the financial statements that reconcile the two numbers.
Under both GAAP and the income tax basis of accounting, assets that have a limited useful life are subject to depreciation. Their cost is charged (written off) to the income statement over a period of time. Debit depreciation (an expense) credit accumulated depreciation (kind of a negative asset that offsets the basis of the asset being depreciated). In real estate, buildings depreciate. Land does not.
On conventional financial statements, all depreciable assets are on a death march . Their only hope is to be sold which will give them a new lease on life on some other balance sheet or continued in the twilight world of fully depreciated assets that show up and do their job every day in the business operation, but are of no account to the accountants.
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More information about Bassets eDepreciation software can be found at Bassets.net or depre123.com. At Bassets register for our live webinar, download a free evaluation copy and get a personalized pricing estimate. At depre123 try out our Free Depreciation Calculator and check out our cloud based fixed assets application.