Difference between Tax Depreciation and Book Depreciation

Organizations of every shape and size, from nonprofits to for−profits, need bookkeepers to keep their books. Most formerly successful businesses may have been saved with the use of fundamental bookkeeping procedures. To begin, you need a basic understanding of accounting, which is not basic at all for the vast majority of the population.

First, we'll talk about depreciation. The depreciation of an asset over time is measured in this way, and it is used in the business sector as a technique to divide up the price of necessary assets. It is possible that a business will have to depreciate its assets in two ways− one is for tax purposes, and the other is recorded in the books. Knowing the distinctions between these terms and how they should be used in business settings is crucial.

What is Tax Depreciation?

This is the taxpayer's depreciation expense for the specified quarter of the tax year. Some jurisdictions' tax rules allow individuals and businesses to write off the cost of depreciated physical assets within a certain time frame. Tax depreciation allows companies to reduce their taxable income by claiming expenses as deductions.

Most business owners have no idea that some assets can't be written down on their taxes. The types of assets that can be depreciated without incurring additional tax liability are dependent on the company's location and the legislation that govern these principles.

The following are some of the fundamentals of tax deductions −

  • The tax owner is the only one who may own the asset.

  • The owner of the asset engages in activities that generate money for themselves.

  • The value of the asset can be used for more than a year.

  • The useful life of the asset is something that can be calculated.

What is Book Depreciation?

Accounting depreciation is another word for the expense that a business writes off throughout the useful life of a physical item. However, this does not reflect how much money a corporation has. It is shown in the income statement and reduces a company's net income, which in turn lowers the company's tax liability. Depreciation must be recorded on a company's balance sheet as a matter of law in most jurisdictions.

You can calculate book depreciation using either the straight−line or accelerated methods. The straight−line method allocates expenses fairly over the product's expected lifespan. The accelerated method, on the other hand, reduces the amount of depreciation charged towards the end of an asset's useful life while charging more throughout the early stages of its life.

Differences: Tax Depreciation and Book Depreciation

The following table highlights how Tax Depreciation is different from Book Depreciation −

Tax Depreciation Book Depreciation
The phrase "tax depreciation" is used to refer to the amount of depreciation that a taxpayer claims as a deduction on their tax return for a certain tax year. Book depreciation is the expense recorded by a company for the use of a fixed asset over the useful life of that asset.
Businesses need to factor in tax depreciation when filing their tax returns. It is recommended that businesses use book depreciation when creating their financial statements.
The cornerstone of tax depreciation is the adoption of tough requirements that allow depreciation based on the sort of assets rather than the useful life or quantity of use of an item. Book depreciation is figured up based on how and at what rate an asset was really used.
The tax depreciation schedule must be prepared in compliance with the relevant tax laws. Depreciation on the books must be created in a way that complies with the laws governing the company and with accounting standards.


Businesses need to factor in tax depreciation when filing their tax returns. Depreciation might be estimated based on the kind of asset rather than on the projected lifespan or the intended use of the asset. Alternatively, book depreciation, based on an asset's actual usage and rates during its lifetime, is what businesses should use for their financial statements.

Updated on: 29-Nov-2022

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