I do NOT understand depreciation. Can somebody help me? I need it explained like a 5 year old.

[Drew Richards]

20. Maybe this will help...sometimes I am not real clear though...

Let me see if i can take a stab at it for you.

In a sentence...

A net worth loss to the value of your company due to depreciation ONLY applies if you are a publicly traded company OR if you are SELLING the company and all its assets.

Say you are mining company that is traded on the stock market. (if you are not a public traded company then there is no financial loss from depreciation it is balanced by tax write offs)

Because you are a public company your net worth value is calculated by your production (corporate Net Gains) AND by your inventory which depreciates in value every year.

Because of depreciation on all your heavy equipment there is a direct valuation depreciation on the net worth of your company...But this is virtually written off by two things...

1. the Equipment depreciation tax write off.
2. Tax write off on corporate net loss and depreciation which a LLC SC LC can write off totally for 5 years and partially there after.

This is actually miniscule I mean tiny tiny unless you're an idiot and have no clue how to run a business.

ZEROTH RULE OF BUSINESS.

1. INCORPORATE BEFORE you begin...LLC (limited liability corporation) SC LC to limit you financial libility.

*FIRST RULE OF BUSINESS*.

2. Expect to run in the red for the first 5 years and have the liquid capital to survive those first 5 years while building your business clientel or product to the point of break even.

3. At the 5 year (hopefully) break even point you reinvest capital gains to maximize production for the next two years, and eat or push forward to the next couple years the small depreciation loss.

4. At year 7 you should be a viable company that can write off the devaluation percentage as business and purchase or acquire newer more efficient equipment or personnel to maximize your profitability through new clientel or production.

5. At year 8 you Crush your employees, see them driven before you, to hear the lamentation of their women. (Conan)