As an entrepreneur, you will be confronted with many things – especially tax-related – that you as a private person have certainly not paid enough attention to. Your purchases are very important for the company. They have a tax-reducing effect and you can write them off at the end of the year. In order to do that correctly, you have to deal with the “depreciation for wear and tear”, or depreciation for short, and the depreciation table .
What is a depreciation table?
When explaining, you must first distinguish between two terms: You can “deduct” something from the tax or “write off” something .
Deducting would mean that you can deduct the full amount (such as advertising expenses or travel expenses) and this has a tax-reducing effect.
The depreciation , however, means that you’ve bought something, namely a so-called asset that you can use a long time. Of course, it wears out and loses value. A popular example of this is a laptop.
With the deduction for wear and tear, you spread the acquisition costs of the laptop over a certain period of use and can thus write off a certain amount for this laptop every year. Explained in technical terms, this means that you can write off the acquisition and production costs of fixed assets or an asset of depreciable fixed assets annually over the entire normal useful life.
And of course there are several options for this, certain value limits and a few special features, which we will explain to you in the following article.
According to gradphysics, the so-called depreciation table from the Federal Ministry of Finance (BMF) is an important aid for depreciation . The legal basis is § 6 EStG (Income Tax Act) and §§ 253, 255 HGB ( Commercial Code ). Further details that must be taken into account can be found in Section 7 of the Income Tax Act.
The HGB regulates the calculation of acquisition and production costs, value limits and useful lives for accounting under commercial law. There are additional rules for determining the taxable profit. The EStG defines the useful life and percentages for movable assets, as well as fixed assets and buildings. It also regulates which depreciation methods are permitted for tax purposes.
What is the economic purpose of depreciation?
Annual financial statements under commercial law must give a true and fair view of the assets, financial and earnings position of a company in accordance with the principles of proper bookkeeping (Section 264 (2) of the German Commercial Code). To do this, it is necessary to allocate revenues and expenses to the accounting periods in which they arise from an economic perspective.
Example: X-GmbH acquires a company building worth 60 million euros in 01, which is planned to be used for 30 years. The company’s profit before depreciation amounts to 10 million euros.
In cameralistics, which shaped the public sector for a long time and is still practiced at the federal level, the 60 million in 01 would be recorded in full as expenditure. The Federal Republic of Germany does not draw up any annual accounts either, it only implements the budget!
If X-GmbH were to proceed in the same way, it would have to cope with a deficit of 50 million euros in 01 and would probably be overindebted in the balance sheet – even if the value of the building climbed to 61 million euros by the balance sheet date.
Such a result is economically nonsensical and also not suitable to meet the requirements of the paragraph cited above, since it completely distorts the actual circumstances.
Solution: depreciation of the acquisition costs
This can be prevented by depreciation, which spreads the acquisition costs of the building over its useful life. The annual result of X-GmbH will then only be charged with 2 million euros in 01 and a surplus of 8 million will be realized. In this way, hidden reserves can also arise, but the result represents the actual asset and earnings situation much more realistically than the cameralistic method.
In commercial law, the depreciation guarantees the informative value of the financial statements. In tax law, they also secure and consolidate tax revenue. In the above example, the X-GmbH generates a taxable profit due to the depreciation. If, on the other hand, it were to immediately claim the acquisition costs in full as operating expenses, the result would be a loss, and the remaining loss carryforward would also ensure that no taxable profit arises in the following years. After the loss carryforward has been used up, this effect would cease to exist, but by then the building could burn down and X-GmbH could be insolvent. The state would then come away empty-handed.
Depreciation not only complicates bookkeeping, it also fulfills an economically rational purpose.
What are the causes of depreciation?
Reductions for wear and tear are essentially necessary for the following reasons:
- Time component : aging
- Consumption component : wear and tear
- Environmental component : weather-related damage and loss of substance
- Economic component : changes in demand or technical progress
- Legal component : changes to the law or expiry of property or usage rights
What can you use the depreciation table for?
As already explained above, the acquisition and production costs of the depreciable fixed assets are distributed over the normal useful life. To do this, every entrepreneur must estimate the useful life, taking into account the special operational conditions. It’s still quite simple with a computer or a car, but what about a bristle-plucking machine, a shower catheter or a dairy cow? Not easy!
This is where the tax depreciation tables come in, which are based on experience and serve as a guide. In addition, they also provide the taxpayer with legal certainty, as they are recognized by the tax authorities and the tax courts, although they are not legally binding.
Entrepreneurs who use the official tables to determine tax depreciation can look forward to the next tax audit , at least as far as this item is concerned.