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J.K. Lasser's Small Business Taxes 2013: Your Complete Guide to a Better Bottom Line by Barbara Weltman

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Records for Depreciation, Basis, Carryovers, and Prepaid Expenses

For some tax items you must keep a running account, because deductions will be claimed not only in the current year but also in years to come.

Depreciation

Depreciation allows you to recover the cost of property over the life of that property by deducting a portion of the cost each year. In order to claim your annual deductions, you must keep certain records:

  • Costs and other information necessary to calculate your depreciation
  • Capital improvements to depreciable assets
  • Depreciation deductions already claimed
  • Adjustments to basis as a result of depreciation deductions

This information not only is necessary for depreciation purposes but will also be needed to calculate gain or loss and any depreciation recapture on the sale or other disposition of a depreciable asset. For full details on claiming depreciation, see Chapter 14.

The same recordkeeping rules apply not only to depreciation but also to amortization and depletion deductions.

Basis

Basis is the cost of property or some other value assigned to property. Basis is used for several purposes: It is the amount on which depreciation deductions are based, as well as the amount used to determine gain or loss on the sale or other disposition of property.

The basis of property can vary from its basis upon acquisition. Some items increase basis; others decrease it. Keep track of changes in basis. These can result from:

  • Depreciation deductions or first-year expensing ...

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