Summary
Depreciation and amortization are where small-business returns most often go quietly wrong. The rules change every few years, the right answer depends on facts buried in invoices, and an error made in the year an asset is placed in service compounds for its whole recovery period. NGTAX.AI keeps book and tax fixed-asset registers side by side, uses a model only to propose classifications and elections from the evidence, and computes every figure from rate tables in code.
The same ledger supports valuation workpapers — for planning, acquisitions, Delaware franchise tax and qualified small business stock tests — prepared for a credentialed professional to review.
Status. Bonus, MACRS, de minimis, §174/§174A, prepaid and §197 computations run in the engine today for tax years 2024 and 2025. The full register, disposals and the valuation analyst are in development or on the roadmap.
Rules below are stated as at November 2026 and are a starting point, not advice. The engine applies only rules held in its authority register, each tied to a primary source and the tax years it covers.
Where the model helps and where it must not
| The fixed asset agent proposes | Code computes |
|---|---|
| That a purchase is a capital asset, not a supply | Whether it clears the de minimis safe harbor |
| The asset class and recovery period | The MACRS percentage for each year |
| Placed-in-service and acquisition dates from the invoice | The bonus rate that applies to those dates |
| Which elections are available and worth considering | The effect of each election on this year and future years |
| That an acquired customer list is a §197 intangible | 15-year ratable amortization |
The CPA chooses elections. The register records the choice and its authority.
The decision sequence for a purchase
- Repair or improvement? Routine maintenance is deductible; betterments, restorations and adaptations are capitalized (Treas. Reg. §1.263(a)-3).
- De minimis? Taxpayers without an applicable financial statement can expense items up to $2,500 per invoice or item under the safe harbor, with an accounting policy in place (Treas. Reg. §1.263(a)-1(f); Notice 2015-82).
- Class and recovery period. From the asset class tables (Rev. Proc. 87-56) and Publication 946: 5-year computers and vehicles, 7-year furniture and machinery, 15-year land improvements and qualified improvement property, 27.5-year residential rental, 39-year nonresidential real property.
- Elections. §179 expensing — up to $2.5 million for 2025, phasing out above $4 million of qualifying property — or bonus depreciation, which is 100% for qualified property acquired after 19 January 2025 (P.L. 119-21). Property placed in service in 2024 took 60% bonus. The engine applies the rate for the acquisition and in-service dates, not the year of the return.
- Convention. Half-year, mid-quarter when more than 40% of the year's basis lands in the last quarter, or mid-month for real property.
- Limitations. Listed property and passenger-automobile caps (§280F); ADS for an electing real property trade or business under §163(j).
Intangibles and costs that look like expenses
- Acquired intangibles — goodwill, customer lists, non-competes, acquired software in a business acquisition — amortize over 15 years under §197.
- Research and experimental expenditure. Domestic R&E is deductible for tax years beginning after 2024 (§174A); foreign R&E is amortized over 15 years. Capitalized domestic amounts from 2022–2024 have their own recovery rules and elections (Rev. Proc. 2025-28). The engine tracks the unrecovered balance across years.
- Start-up and organizational costs. Up to $5,000 of each may be deducted in the first year, reduced dollar-for-dollar above $50,000, with the rest amortized over 180 months (§195, §248).
- Prepaid expenses. The 12-month rule allows some prepayments to be deducted when paid for tax while they are amortized for books (Treas. Reg. §1.263(a)-4(f)).
Book and tax, side by side
Book depreciation follows the company's policy — typically straight-line over useful life. Tax follows MACRS and elections. The difference is a Schedule M-1 adjustment, and over time a deferred tax item. Keeping two registers that share the same assets — with the same placed-in-service dates and the same disposal events — is what makes the M-1 adjustment computed rather than plugged.
On disposal, the register computes gain or loss on each basis and the depreciation recapture character, so the sale of a truck or a building is not a separate spreadsheet.
By type of business
| Business | Typical assets | What matters most |
|---|---|---|
| SaaS and technology | Laptops, servers, capitalized development, acquired code | §174A, de minimis policy, §197 for acquisitions |
| E-commerce and retail | Racking, fit-out, vehicles | Qualified improvement property, inventory method |
| Professional services | Furniture, leasehold improvements | De minimis, QIP, purchased client lists |
| Real estate | Buildings, land improvements | Land allocation, cost segregation, §163(j) election and ADS |
| Restaurants | Kitchen equipment, remodels, smallwares | Repair vs improvement, QIP, de minimis |
| Construction | Heavy equipment, trucks | §179 vs bonus, listed property, business-use percentage |
| Healthcare | Clinical and imaging equipment | §179 and bonus timing, purchased goodwill |
| Manufacturing | Machinery, factories, tooling | Qualified production property (§168(n)), uniform capitalization |
Valuation workpapers from the ledger
Several tax and planning questions need a value, not just a cost:
- Acquisitions. Purchase-price allocation across the asset classes on Form 8594, which drives what is depreciable, what is §197 and what is goodwill.
- Delaware franchise tax. The assumed-par-value method depends on total gross assets. Computing both statutory methods and paying the lesser routinely turns a five-figure bill into a few hundred dollars.
- Qualified small business stock. Eligibility depends on the corporation's aggregate gross assets when stock is issued — a threshold raised for stock issued after 4 July 2025 (§1202 as amended by P.L. 119-21).
- Planning, buy-sell agreements and owner transactions. Income, market and asset approaches, prepared from normalized statements.
The valuation analyst prepares these workpapers from the same reconciled ledger the return is built on: normalized earnings, discounted cash flow from the CPA's projections, market multiples from the comparables the CPA selects, and the asset approach from the fixed-asset register.
What it is not. A workpaper is not a qualified appraisal for gift and estate purposes, and not an independent valuation for §409A safe-harbor purposes. Those need a qualified appraiser who signs the opinion. NGTAX.AI prepares the analysis that professional reviews.