Do you run a seasonal business? Find out how to depreciate your fixed assets

It often happens that entrepreneurs run their business only for part of the tax year. Such seasonal activities include: winter snow removal or summer fruit harvest. In most of them, taxpayers use fixed assets, such as snow blowers, tractors, cars, etc. Due to the fact that these machines are used seasonally, the question arises how to depreciate the equipment used in such specific activities.

Definition of a fixed asset

Fixed assets are tangible assets with expected useful lives longer than 1 year. In addition, upon acceptance for use, they must be complete and serviceable. Most importantly, the fixed asset must be used for the purposes of the conducted business activity.

Fixed assets include in particular:

• real estate - including land, perpetual usufruct right to land, structures and buildings, as well as separate owned premises, cooperative ownership right to a flat and a cooperative right to a business premises;
• machines, devices, means of transport and other things;
• improvement in foreign fixed assets;
• livestock.

Depreciation of fixed assets in seasonal activities

The issue of depreciation of fixed assets used seasonally has been regulated in Art. 22 h of paragraph 1. 1 point 3 of the Personal Income Tax Act. According to its regulations:

“The depreciation write-offs are made for the seasonally used fixed assets and intangible assets in the period of their use; in this case, the amount of the monthly write-off is determined by dividing the annual amount of depreciation by the number of months in a season or by 12 months in a year ”.

This provision allows the taxpayer to recognize depreciation charges in tax costs in two ways. The first one consists in dividing the value of the annual depreciation write-off into the number of months in a season. The second, in turn, is about dividing the annual value of depreciation write-offs into 12 months.

Which of the methods of recognizing depreciation write-offs is more favorable?

The assessment of the profitability of each of the methods of recognizing depreciation write-offs in costs is at the individual discretion of the taxpayer. The first option, which consists in dividing the annual value of depreciation write-offs into the number of months during which the activity will be conducted, allows for an increase in tax costs. The second - extends the depreciation period of the fixed asset.

Example 1.

An entrepreneur in his company uses a machine with an initial value of PLN 30,000 seasonally, with the depreciation rate based on the list of rates being 10%. The actual period of use is from November to March inclusive. The taxpayer adopted a method in which he divides the annual depreciation write-off into months in a season.

Annual depreciation value: PLN 30,000 * 10% = PLN 3,000

Monthly depreciation charges included in tax costs in the period November - March (5 months):

PLN 3,000: 5 months = PLN 600

The depreciation period for the machine in this case will be 10 years.

Example 2.

An entrepreneur in his company uses a machine with an initial value of PLN 30,000 seasonally, with the depreciation rate resulting from the list of rates being 10%. The actual useful life is from November to March inclusive. The taxpayer adopted a method in which he divides the annual depreciation charge into 12 months.

Annual depreciation value: PLN 30,000 * 10% = PLN 3,000

Monthly depreciation recognized in costs in the period from November to March:

PLN 3,000: 12 months = PLN 250

The depreciation period for the machine in this case will be 24 years.