The Difference Between Depreciation and Amortization: What It Means for Your Business

If you're a business owner, it's important to understand the difference between depreciation and amortization. Both of these concepts relate to your company's expenses, but they have different implications for your taxes. In this blog post, we'll define these terms and explain how they impact your bottom line. We'll also give some examples to help make it all clear.

Want the Cliff-Notes?

Depreciation is for physical assets and Amortization is for intangible assets...keep reading if that wasn’t enough!

What is depreciation?

Depreciation is an accounting method that allows you to spread the cost of a long-term asset over its useful life. This means that rather than deducting the full cost of the asset in the year it was purchased, you can instead deduct a portion of the cost each year.

For example, if you purchase a $100,000 piece of equipment, you might be able to deduct $20,000 each year for five years.

What is amortization?

Amortization is similar to depreciation, however, it applies to intangible assets rather than physical ones. Intangible assets are things like copyrights, patents, and goodwill. Amortization is the process of slowly writing off the cost of these intangible assets over time - similar to what depreciation does for physical assets.

What is the difference between depreciation and amortization?

The main difference between depreciation and amortization is that depreciation applies to physical assets while amortization applies to intangible assets. Depreciation is also a faster way of writing off the cost of an asset than amortization.

How does amortization affect business taxes?

Amortization can affect business taxes in a few different ways. First, it can be used to write off the cost of an intangible asset over time. This can help lower a business's tax bill in the long run. Second, amortization can also be used to deduct the cost of certain expenses in the year they were incurred. This can help you save on taxes in the short term.

How does depreciation affect business taxes?

Depreciation can also affect business taxes in a few different ways. First, it can be used to write off the cost of a physical asset over time. This can help lower a business's tax bill in the long run. Second, similar to amortization depreciation can also be used to deduct the cost of certain expenses in the year they were incurred, which saves on taxes in the short term.

To sum it up, depreciation and amortization are two different ways of writing off the cost of assets over time. Depreciation is for physical assets while amortization is for intangible assets. They can both help lower your business's tax bill in the long run.

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