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Depreciation On Asphalt Sealcoating Equipment: Tax Basics

We touched on depreciation of asphalt sealcoating equipment in our Smart Ways To Save Money In Your Asphalt Business This Season article, but did not go into detail. It is important to give you an idea of exactly what the tax benefit is, in simple, non-accountant words. This way you know exactly why it is so important to your asphalt business, and how it can help you pick the right time to buy new sealcoat equipment.

First And Foremost: I am not an accountant; I am a business owner, just like you. Talk to your tax office or accountant about what your depreciation rates will be for your business. These are the basics to give you the simple know-how of depreciation. Remember, just like you are an asphalt pro, and enjoy helping people with their driveways and parking lots, accountants enjoy helping interested business owners understand their finances.

What Is Depreciation All About?

When you buy asphalt sealcoating equipment, it costs you money, and you will be using it for years. So, instead of being able to write off the entire expense, you only get to write off a certain percentage of the cost a year. This is based on the expected lifespan and class. Let’s look at some simplified numbers to understand how this works:

  • $7,000 spent on a piece of sealcoat equipment
  • 15% depreciation rate (remember, example only, your rate may vary)
  • $1,050 first year write-off
  • $5,950 is the new, depreciated value of your machine
  • $892.50 second year write-off
  • $5057.50 is the value for the following year
  • $758.62 third year write off (and so on)
Year AK130 Value 15% Depreciation AK330 Value 15% Depreciation
Year 1 Values $2,450.00 $367.50 $3,399.00 $509.85
Year 2 Values $2,082.50 $312.38 $2,889.15 $433.37
Year 3 Values $1,770.12 $265.52 $2,455.78 $368.37
Year 4 Values $1,504.61 $225.69 $2,087.41 $313.11
Year 5 Values $1,278.92 $191.84 $1,774.30 $266.14
Year 6 Values $1,087.08 $163.06 $1,508.15 $226.22
Year 7 Values $924.02 $138.60 $1,281.93 $192.29
Year 8 Values $785.41 $117.81 $1,089.64 $163.45
Year 9 Values $667.60 $100.14 $926.20 $138.93
Year 10 Values $567.46 $85.12 $787.27 $118.09

To Learn More: Wikipedia’s depreciation page is not easy to read, but has good information with links to specifics like MACRS  (Modified Accelerated Cost Recovery System, the IRS’s method of depreciation and tables.) and for Canadians, CCA (Capital Cost Allowance for the Canada Revenue Agency can be found on Wikipedia as well.

Smaller Deduction Every Year

Now you can clearly see that your sealcoat equipment gets you less of a deduction every year. Thinking about upgrading your asphalt sealcoating equipment with a bigger machine to expand how much work you can do? Remember your biggest write-off comes in the first year. Don’t forget: this applies to all kinds of big ticket items such as business vehicles and other expensive items that are meant to be used for years. Even computers have their own spot on the depreciation portion of your taxes.

Budgeting Know-How

When you know what the rate is for depreciating your asphalt sealcoating equipment, you avoid making bad financial decisions. Knowing that you cannot write off the entire cost of sealcoat equipment in your first year is something every asphalt business must know. That could be the difference between bankruptcy and being profitable. Knowing will also tell you when your current asphalt sealcoating equipment is no longer a significant write-off and if it’s the right time to expand and purchase additional sealcoat equipment, vehicles, or computers.

Don’t be afraid to learn the basics of business finances.

Give your accountant a call (or start looking for one). Find out what the current, depreciated value is of all your sealcoat equipment, and what the percentage is for writing it off. Do your simple math to find out how much you will write off for your current asphalt sealcoating equipment this coming year. For far too many asphalt businesses, this will be the first time they know, and understand this info. Learning more about your finances and depreciation means more profit in your pocket and fewer dollars left on the table – and that’s a good thing for every business owner.

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