Every business relies on equipment to operate smoothly, whether it’s computers, printers, desks, or office furniture. Unlike consumables such as paper or ink, these assets are expected to last for several years. But because they wear out and lose value over time, the IRS does not allow companies to deduct their full purchase price immediately in most cases. Instead, businesses must spread out the expense through depreciation.

Understanding the depreciation rules for office equipment and computers is essential for accurate accounting and tax compliance. It also helps business owners make smarter decisions about purchases and financial planning. Below, we break down the key concepts, rules, and methods that apply.

1. What Is Depreciation?

Depreciation is the process of allocating the cost of a tangible asset over its useful life. It reflects the idea that equipment gradually loses value due to wear, usage, and technological obsolescence. From a tax perspective, depreciation provides a structured way to deduct the cost of business property year by year rather than all at once.

For example, if a company buys $5,000 worth of computers expected to last five years, it cannot usually deduct the full $5,000 immediately. Instead, it must claim annual depreciation deductions spread over the IRS-defined recovery period.

2. What Office Equipment Qualifies?

The IRS allows depreciation for business assets that:

• They are owned by the business.
• They are used in operations to generate income.
• Have a useful life longer than one year.

For office environments, this typically includes:

• Computers and laptops
• Printers, copiers, and scanners
• Office furniture such as desks, chairs, and cabinets
• Phones, servers, and networking equipment

Consumable supplies (like pens, paper, or software subscriptions) do not qualify since they are used up within a year and are expensed immediately.

3. Recovery Periods for Office Equipment and Computers

The IRS sets recovery periods for different types of property, which determine how long depreciation is spread out. For most office equipment, these are:

• Computers, laptops, and peripherals: 5 years
• Office furniture and fixtures: 7 years
• Certain communication equipment: 7 years

These timelines apply under the Modified Accelerated Cost Recovery System (MACRS), which is the most commonly used depreciation system in the U.S.

4. Depreciation Methods

There are different methods of calculating depreciation. The IRS allows businesses to choose among several options under MACRS, depending on their goals and eligibility.

Straight-Line Depreciation

This method spreads deductions evenly over the recovery period. A $5,000 computer with a five-year life would generate $1,000 in depreciation expense each year.

Declining Balance 200% or 150%

This method allows larger deductions in the early years and smaller deductions later. Businesses often prefer accelerated depreciation to reduce taxable income quickly, especially for technology that becomes obsolete quickly.

Section 179 Deduction

Instead of spreading the cost over several years, Section 179 allows businesses to deduct the entire cost of qualifying equipment in the year of purchase, up to a certain annual limit (over $1 million as of recent tax years). This is especially beneficial for small and medium-sized businesses investing heavily in equipment.

Bonus Depreciation

Bonus depreciation allows businesses to deduct a significant portion (sometimes 100%, depending on the year and current tax law) of the asset’s cost in the year it’s placed in service. Unlike Section 179, bonus depreciation is not capped and can create a net operating loss that carries forward.

5. Special Considerations for Computers

Computers and related technology often require special attention because of their short life cycles and frequent upgrades. Key points include:

• Used for business only: To depreciate a computer, it must be used more than 50% of the time for business. If used partly for personal purposes, only the business-use portion is depreciable.

• Peripherals included: Items like monitors, keyboards, and external hard drives are considered part of the computer system and depreciated over five years.

• Rapid obsolescence: Because technology evolves quickly, accelerated methods like Section 179 or bonus depreciation are often favoured to capture deductions upfront.

6. When Depreciation Begins and Ends

Depreciation begins when the asset is placed in service, not when it is purchased. For example, buying a computer in December but not installing it until January means depreciation starts in the following tax year.

Depreciation ends when the asset is either fully depreciated, disposed of (sold or scrapped), or retired from business use. If the equipment is sold, the business may have to recognise recaptured depreciation as taxable income, depending on the sale price. You can check your depreciation rates here for free. 

7. Record-Keeping Requirements

The IRS requires businesses to maintain detailed records of depreciable assets, including:

• Purchase price and date.
• Description of the asset.
• Date placed in service.
• Recovery period and method used.
• Annual depreciation amounts claimed.

Good record-keeping ensures compliance and makes it easier to prepare financial statements, tax returns, or respond to audits.

8. Strategic Planning With Depreciation

Depreciation isn’t just a tax requirement; it’s also a planning tool. Businesses can use it to:

• Time purchases strategically: For example, buying equipment before year-end may allow an immediate Section 179 or bonus depreciation deduction.
• Match expenses to revenue: Straight-line depreciation aligns costs with the ongoing benefit of the asset.
• Manage cash flow: Accelerated methods can free up cash by reducing taxable income in early years.

Working with an accountant or tax advisor ensures the business chooses the most beneficial method based on current laws and financial goals.

Final Thoughts

Office equipment and computers are essential investments for modern businesses, but they also come with complex tax treatment. Understanding depreciation rules helps companies maximise deductions while staying compliant with IRS requirements.

From five-year recovery periods for computers to options like Section 179 and bonus depreciation, businesses have flexibility in how they account for these costs. The right choice depends on factors such as cash flow needs, the scale of investment, and long-term tax strategy.

Handled properly, depreciation isn’t just an accounting formality; it’s a financial tool that can strengthen a business’s bottom line and support smarter growth decisions.