Which Method of Calculating Depreciation of Fixed Assets Should a Self-Employed Choose?

Sooner or later, almost every self-employed faces a situation where an item purchased for business purposes needs to be registered as a fixed asset. To include it in business expenses, depreciation must be calculated using one of the available methods. But which one should you choose, and does it really make a difference?

A Brief Overview of Fixed Assets

Fixed assets are all tangible items used in business activities for providing services, producing goods, or administrative purposes. Most commonly, these include various technologies, equipment, computers, furniture, office machinery, vehicles, as well as land or buildings.

Items are considered fixed assets if their value exceeds €1000. The cost of such items cannot be immediately included as a business expense - it is done gradually by determining the initial value, registering the asset, and calculating depreciation.

Which Depreciation Method to Choose?

Self-employed individuals can choose one of two methods - the declining balance method or the straight-line method. The declining balance method calculates depreciation as a percentage. The straight-line method calculates depreciation over the asset’s useful life in years. You are free to choose either method at your discretion. Keep in mind:

• Only one depreciation method may be applied to all fixed assets;
• The method can be changed once every ten years.

Most self-employed people choose the straight-line method, as it is simpler to use.

Depreciation is calculated until the residual value at the end of the tax period does not exceed €75. After that, the remaining value is written off as an expense.

Learn more about fixed asset calculation and accounting in our blog, as well as in Article 11.5 of the Personal Income Tax Law.

With pats.lv fixed asset depreciation, everything is automatic!

Need to register a fixed asset? You can do it quickly and easily on pats.lv:

• Log in to your pats.lv profile;
• Add the asset in the “Pamatlīdzekļi” (Fixed Assets) section;
• Choose the depreciation calculation method;
• Enter the purchase value, calculation type, and other required details;

pats.lv will automatically calculate the asset’s depreciation and include the information in your business activity journal!