MACRs depreciation is a system used to calculate depreciation for tax purposes. MACRs stands for "Modified Accelerated Cost Recovery System." Depreciation is used for various items in a business, specifically things like machines, furniture, or other large asset purchases. As its name implies, it is an accelerated recovery method to speed up the depreciation of your asset. By accelerating the depreciation on your assets, this will in turn lower your tax bill. This is possible because depreciation allows you to deduct money off of your taxes. If you can depreciate an item faster, you are able to push tax burdens into future years. Taxes are deferred, which means that a company can pay off more of their purchases faster by having to pay less in taxes. MACRs is usually used just for tax purposes and is not usually acceptable for financial reporting under G.A.A.P. Companies tend to use straight line depreciation methods on items like their financial statements because this will show more income, which will, in turn, make their organization more tempting for potential investors.
MACRs Depreciable Lives
Items are given a specific lifetime for depreciation purposes. There are two current lives for assets. There is a regular depreciation cost, and then there is also an accelerated depreciation cost, which is the number used by MACRs. The life of an asset will be determined by what the asset specifically is. Something like land will depreciate over 15 to 20 years, while pieces of technology are typically depreciated very quickly. Personal property has a depreciable life range from anywhere between 3 to 20 years. For more specific tables, the IRS website would be an excellent source.
MACRs was created in order to entice businesses to invest in newer, modern products instead of using old, outdated technology. This increases business efficiencies and will also produce better products for the consumer. It can also allow you to profit more by making higher quality products. By having newer equipment, this can create competitive advantages against your business competitors, who may still be using older equipment. There is also a time element involved. In the early years of your asset, you will have an increased time value benefit by getting more value out of your assets. In the years when the asset has already finished its depreciation, any income earned from it will be "fresh" and will create even more profit for your company.