Managing Fixed Assets Depreciation For Your Farming Business
During harvest time, your agricultural business is booming with sales and operations. But fixed assets depreciation will happen you’re booming with business or experiencing slow times. Equipment wears out, technology gets improved, and vehicles become obsolete.
Not tracking deprecation in your farming business means you’ll pay too much in taxes. It’ll also mean you have fewer funds to replace an asset once it surpasses its useful life.
Know What Can Be Depreciated
Not all assets can be depreciated. While all assets you depreciate will be fixed assets, not all of those qualify for depreciation. Assets must lose their value over time to qualify for depreciation.
Investment assets and personal property can’t be depreciated.
Other non-depreciable assets include:
- Cash in hand
- Investments (stocks and bonds)
- Leased property
Most equipment and vehicles qualify for depreciation because they lose their value over time. However, they have to meet the following requirements, as outlined in IRS Publication 946.
- You have to own it (leased equipment doesn’t count)
- You have to use it to support your agricultural business
- The asset must have a minimum useful life of one year
Create a Way to Track Fixed Assets Depreciation
Trying to calculate depreciation after the fact can be messy and complicated. Instead, track depreciation as it happens. Set aside time to review your records and check usage against expected depreciation. You’ll want to do this either monthly or quarterly, depending on how much equipment you have in your business.
Before you can track the depreciation of your agricultural assets, you’ll need to know what depreciation method you’re using. The best way to pick a method is based on the following information.
- Cost of the asset – including taxes, setup expenses, and shipping/transportation.
- Useful life – the time period you expect a specific asset to be productive. Beyond this, it’s no longer cost-effective to continue using.
- Salvage value – once an asset has passed its useful life, you might consider selling it for a markdown. Whatever you sell it for is considered the salvage value.
Using the straight line depreciation method is the simplest way to depreciate your assets.
Track Asset Usage in a Software Database
Many depreciation methods will rely on usage information. Some of them are even depreciated each time an asset gets used. This is a common method of depreciation for manufacturing setups.
When you track your asset usage, you can compare it to your predicted usage. If it varies to a large degree, you can readjust your depreciation from what you expected it to be.
Tracking asset usage doesn’t have to be difficult. When you get the right software, you can set it up so your asset tracking is painless. All you have to do it tag your assets, input them into your database and scan them each time you use them.
Once you’re ready to go through your quarterly self-audit, you can see how often you or your team used each asset. All of this information can help you determine if you need to adjust your depreciation schedule, maintenance requirements, and other planning that happens each quarter.
Fixed assets depreciation can seem confusing and daunting, but when you have a system in place, and asset tracking software on your side, you’ll be able to manage it with the rest of your business.