If you purchase a used bicycle for business purposes, the Internal Revenue Service (IRS) considers the bicycle a capital asset because it has a useful life of longer than one year. Capital assets cannot be expensed in full when purchased, but must instead be depreciated over the useful life of the asset according to the terms and depreciation percentages set forth in the Uniform Tax Code.
Print a copy of IRS Form 4562 Instructions from the IRS website.
Determine the useful life for depreciation for the bicycle. As of 2010, a bicycle is considered to have a five-year useful life.
Determine your basis in the property. Your basis for the used bicycle will be what you paid for the bicycle.
Multiply your basis in the property by the percentage of allowed depreciation for the tax year. Use the 200-percent Declining Balance Method of depreciation for a bicycle. The IRS makes charts available that will provide you with the exact percentage of depreciation to use each year of the asset's useful life. For example, the first year of depreciation for a bicycle is 20 per cent of the basis. If the bicycle cost £325, then multiply £325 times .20 to arrive at £65.
Multiply the number calculated in Step 3 by .50, if this is the first year you are claiming depreciation on the bicycle. The IRS does not calculate depreciation based on the actual purchase date, but rather assumes all property is placed into business use in the middle of the year. For example, multiply the £65 of depreciation calculated in Step 3 times .50 to arrive at £32. The £32 is your allowed depreciation deduction for the first tax year. You do not have to do this step in the remaining depreciable tax years.
If you are not certain how to calculate depreciation on company assets, consider purchasing depreciation software and hiring an accountant to help you with set-up.
Tips and warnings
- If you are not certain how to calculate depreciation on company assets, consider purchasing depreciation software and hiring an accountant to help you with set-up.