How do I track equipment depreciation for my contracting business?
Start by creating a fixed asset register. This is a list of every piece of equipment your business owns that has a useful life beyond one year. Trucks, trailers, excavators, skid steers, compressors, generators, major power tools. For each item, you need the purchase date, what you paid including sales tax and any setup costs, and how you’re depreciating it.
The IRS determines how long you depreciate different types of equipment. Most construction and trades equipment falls into 5 or 7 year recovery periods. Vehicles are typically 5 years. Some specialized assets have different rules. Your accountant should be assigning the correct category to each asset when you add it to your books.
You also need to decide whether to take Section 179 or bonus depreciation in the year you buy equipment. These provisions let you deduct the full cost immediately instead of spreading it over multiple years. Whether that makes sense depends on your current income level and expected future profits. Accelerating deductions saves taxes now but leaves nothing to deduct later. This is a strategic decision that should involve your tax advisor.
Keep your purchase documentation. The invoice for that $42,000 mini excavator matters years later when you’re still claiming depreciation or when you sell it. Store these digitally and connect them to the corresponding asset in your records.
QuickBooks and most accounting software have fixed asset tracking features. You enter the asset details and the software calculates depreciation each period. If you’re not using software that handles this, a simple spreadsheet works as long as you update it consistently. Either way, this isn’t something to wing. The numbers feed directly into your tax return.
When you sell or dispose of equipment, the tracking continues. You need to record the sale price, compare it to the remaining book value, and calculate any gain or loss. If you sell equipment for more than its depreciated value, that triggers taxable income. Your records need to reflect what happened so your tax preparer can report it correctly.
Review your asset list at least once a year. Equipment gets replaced, sold, or junked. Fully depreciated assets might still be working or might be long gone. A current list means your books reflect reality and you’re not claiming depreciation on equipment you no longer own.
If managing all of this sounds like more than you want to handle, that’s understandable. A Treasure Valley bookkeeping and tax firm that works with contractors can maintain your fixed asset register, run the depreciation calculations, and coordinate with whoever prepares your taxes. The bookkeeping and tax work need to match, and having someone keep those records accurate saves you from problems later.
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