Introduction

This guide explains which assets you must depreciate, which you must write off, and which offer a choice between the two. These decisions impact your profit and loss (P&L) and corporation tax.

In the USA, the document IRS 946 - How to Depreciate Property provides detailed information on depreciation methods and rules.

The above document also provides tables (MACRS and ADS) for calculating depreciation amounts for different asset classes. These tables can actually be derived with simple formulae, or you can use the tables.

In the UK, businesses don’t use depreciation for tax purposes. Instead, they claim capital allowances, which provide tax relief for capital expenditure. Capital allowances reduce taxable profits, whereas depreciation affects only the accounting books. Documents from the UK government include:

• Capital Allowances Manual
• Capital allowances for structures and buildings agent toolkit
• Claim capital allowances

Is it better to depreciate or to write off ?

When you depreciate, only a part of the value of the asset is subtracted from your profits each year, so if you are using straight line depreciation over 5 years, 20% of the asset cost is moved from your balance sheet to your P&L as a loss. The rest of the value of the asset stays on your balance sheet.

When you write off, all of the cost of the asset goes straight to your P&L as a loss.

• Depreciation smooths out deductions, preserving higher profits in early years.
• Write-offs provide immediate deductions, which reduce taxable income sharply in the year of purchase.

Assets You Must Depreciate

Depreciation spreads the cost of an asset over its useful life. You must depreciate assets that:

• Have a useful life exceeding one year.
• Are expected to lose value over time.
• Are used in your business to generate income.
• Have a cost exceeding a capital expenditure threshold

Examples:

• Buildings (excluding land)
• Vehicles
• Machinery and equipment
• Furniture and fixtures

IRS rules require depreciation for these assets using methods like straight-line or declining balance, based on their assigned recovery periods.

Assets You Must Write Off

A write-off deducts the entire cost of an asset in the year it’s purchased or deemed worthless. You must write off assets that:

• Are consumed or used up within one year.
• Have no salvage value or future use.
• Become obsolete or damaged beyond repair.

Examples:

• Office supplies (e.g., paper, pens)
• Inventory sold or discarded
• Obsolete software licenses
• Other consumables
• Minor low value IT assets like keyboards, mice, and cables which were bought separate from the main asset

These expenses are deducted immediately as they don’t meet depreciation criteria.

Depreciate or Write Off

Some assets qualify for either depreciation or write-off. These include:

• Qualifying property with a useful life of < 20 years including Computers and Software
• Assets costing below a certain threshold (e.g., de minimis safe harbor allows expensing of items under $2,500).
• Improvements to non-residential property (e.g., roofing, HVAC) under certain conditions.

In the USA, additional rules allow expensing of assets at purchase, these are covered in more detail in the IRS 946 document:

• Section 179 allows expensing up to $1,160,000 (in 2025) for qualifying assets
• Bonus Depreciation permits write-off for new or used assets placed in service through to 2026.

Impact on P&L and Corporation Tax

This example compares depreciation and write-off for a $10,000 computer system using a 5 year recovery period, straight line, and 21% corporate tax.

Which is Best?

The choice of depreciation vs write-off depends on your financial situation:

• Write-Off is best if you need immediate tax relief
• Depreciation spreads deductions over the recovery period
• Write-offs provide faster cash flow benefits due to larger upfront tax savings, but depreciation ensures consistent deductions over time

Using xAssets Fixed Asset Management software to depreciate assets

xAssets Fixed Asset Management Software includes a comprehensive multi-currency, multi-book depreciation calculation engine with configurable formulae and table lookups. The MACRS tables are built into the product (and can be modified), or you can replicate the MACRS table numbers with double declining balance and straight line formulae. The system supports all types of depreciation and supports complex setups with multiple sets of accounting periods. The system works with unusual accounting period setups such as 4-4-5, and also supports accounting period changes (e.g. a change of the financial year end period). You can read more about the specifics of the depreciation engine here

The system has passed USAF DoD security checks and is scalable to very large enterprises. Annual calculation of 50,000 assets in four parallel accounting books (to create 2.4 million monthly transactions) was recently timed in a scalability test at 6 minutes, and for many smaller customers, calculations are instantaneous.

Conclusion

The decision to depreciate or write off assets has a large effect on corporation tax. Use depreciation for long-term high value assets and write-offs for short-term or low value items. Section 179 allows write off for qualifying property.