Small Business Tax Dictionary
Depreciation
Depreciation is the gradual reduction in value of assets such as furniture, equipment, or computers used in a home office. As these business assets age, their value diminishes, and tax regulations typically permit you to claim this decline as a deductible expense.
How depreciation works
Depreciation allows business owners to distribute an asset's acquisition cost across its productive lifespan. Rather than claiming the full cost of an asset in the year it was purchased, you spread the deduction over the asset's useful life.
For example, if you purchase a computer for $2,000 and it has a useful life of 4 years, you might claim $500 in depreciation each year.
Depreciation in New Zealand
The Inland Revenue (IRD) sets depreciation rates for different types of assets. Common home office assets like computers, desks, and chairs each have their own prescribed rate. You can use either the:
- Diminishing Value method — a fixed percentage applied to the asset's current (declining) value each year
- Straight Line method — an equal amount deducted each year over the asset's life
Why depreciation matters
Claiming depreciation ensures you capture the true cost of running your home office over time, rather than missing legitimate deductions simply because an asset wasn't fully consumed in a single tax year.