Calculate asset depreciation using straight-line, double declining balance, or MACRS methods with a complete year-by-year schedule.
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A Texas-based freelance graphic designer earns $140,000 net profit/year from client work. She's evaluating whether to stay as a sole proprietor, form an LLC, or elect S-Corp status to reduce self-employment taxes.
Takeaway: S-Corp saves $8,300/year but adds ~$1,500-$3,000 in accounting fees (payroll, extra returns). Break-even is around $80-90K net profit. Below that, the overhead eats the savings. Texas has no state income tax, so the benefit is purely federal SE savings.
LLC annual fees range from $0 (Ohio) to $800 minimum (California, even for zero-revenue LLCs). Delaware C-Corp is standard for VC-backed companies but adds registered agent costs (~$300/yr) for out-of-state entities. The "best" structure is state-specific.
S-Corps cannot have more than 100 shareholders, cannot have non-US shareholders, and cannot have corporate shareholders. Violating these rules (e.g., adding a foreign investor) terminates S-Corp status retroactively, potentially creating a large unexpected tax event.
The IRS requires S-Corp owner-employees to pay themselves a "reasonable salary" before taking distributions. There is no fixed formula — the IRS looks at industry benchmarks, duties, and hours worked. Setting the salary too low is a common audit trigger for S-Corps.
Business break-even models track revenue vs. direct costs. They rarely factor in the owner's time as a cost. If you're working 60 hours/week at imputed $50/hour, your "profitable" business may be paying you $12/hour after the opportunity cost calculation.
Break-Even CalculatorA service business valued on EBITDA multiples (2-4×) gets a very different number than one valued on SDE (seller's discretionary earnings) or discounted cash flow. Buyers and sellers typically use different methods to argue their preferred price. This calculator uses a single method.
Business Valuation CalculatorBased on your inputs
Total: $9000.00 over 5 years
| Year 1 | $1800.00 (book: $8200.00) |
|---|---|
| Year 2 | $1800.00 (book: $6400.00) |
| Year 3 | $1800.00 (book: $4600.00) |
| Year 4 | $1800.00 (book: $2800.00) |
| Year 5 | $1800.00 (book: $1000.00) |
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Straight-line spreads the cost evenly over the useful life: (Cost − Salvage) ÷ Useful Life. It's the simplest and most common method.
MACRS (Modified Accelerated Cost Recovery System) is required for US tax purposes on most business assets. It uses accelerated rates and half-year conventions.
DDB depreciates at 2× the straight-line rate applied to the remaining book value. It front-loads depreciation for faster deductions.
The IRS specifies MACRS recovery periods: 5-year (cars, computers), 7-year (office furniture, equipment), 15-year (land improvements), 27.5-year (residential rental), 39-year (commercial real estate).
Section 179 lets businesses deduct the full cost of qualifying equipment in the year of purchase instead of depreciating over time. The 2024 limit is $1,220,000 with a phase-out starting at $3,050,000.
Bonus depreciation allows 60% first-year deduction (2024) on new and used qualifying assets. It phases down 20% per year through 2026. Unlike Section 179, there is no dollar limit.
Yes, but with limits. Passenger vehicles have annual depreciation caps ($12,400 year 1 with bonus depreciation for 2024). Vehicles over 6,000 lbs GVWR qualify for higher Section 179 limits.
Salvage value is the estimated resale or scrap value at the end of an asset's useful life. MACRS assumes zero salvage value. Straight-line method subtracts salvage value before calculating annual depreciation.
No. Land cannot be depreciated because it does not wear out or become obsolete. Only the buildings and improvements on land are depreciable. Land must be separated from building cost for tax purposes.
The half-year convention assumes assets are placed in service at the midpoint of the year, regardless of actual purchase date. This means only half a year of depreciation is claimed in both the first and last year of the recovery period.
Straight-Line: (Cost − Salvage) ÷ Useful Life
DDB: Book Value × (2 ÷ Useful Life)
MACRS: Cost × IRS Rate (half-year convention)
Every formula on this page traces to a federal agency, central bank, or peer-reviewed institution. We cite the rule-makers, not secondhand blogs.
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Calculations are for educational purposes only. Consult a qualified financial advisor for personalized advice.