Depreciation Demystified: What Founders Need to Know

Depreciation might sound like dry accountant speak, but it’s a game-changing tax tool every business owner should understand. On this episode of Pivot to Profit, Pam Jordan and tax strategist Alexis Sidney break down what depreciation really is, why it matters, and how to use it strategically.

What Is Depreciation?

Depreciation lets you deduct the cost of big-ticket purchases—like vehicles, equipment, or furniture—over time rather than all at once. It’s the IRS’s way of recognizing that these assets lose value with use.

Even if you finance an asset, you can still depreciate the full amount. A $50,000 truck bought with a loan can provide deductions for years to come.

Why It Matters

Many entrepreneurs assume that anything they buy shows up as a business expense on the profit and loss statement. Not so.

Assets over $2,500 go on your balance sheet, not your P&L. Depreciation is what lets you pull portions of those costs over to the P&L gradually.

“That $3,000 Apple laptop? It’s an asset, not a straight expense.” — Alexis Sidney

Types of Depreciation

• Straight-Line: Simple. Divide the cost by its IRS-defined useful life (e.g., 5 years = 20% per year).

• Bonus & Accelerated: Take larger deductions up front—great for years with high income.

• Section 179: Deduct major purchases (up to ~$1M) in the first year. Just remember: if you finance it, you may run out of deductions before you finish paying.

Big Mistakes to Avoid

• Not tracking assets
  Without a depreciation schedule, you risk tax errors and lower business valuations.

• Confusing depreciation with cash flow
  Depreciation doesn’t mean cash is leaving your account—it’s a paper deduction.

• Ignoring depreciation recapture
  If you sell an asset, the IRS may claw back some of your earlier deductions unless you plan wisely.

Take Action

🎯 Track your assets.
🎯 Talk to a tax pro before buying or selling.
🎯 Use depreciation as a strategic tool—not an afterthought.