What does "depletion" mean in taxes?

You might also wonder how tax depletion is calculated.

Another method of depletion involves percentage depletion. This is calculated by multiplying gross income earned in tax year from extracting a source by an IRS-determined percentage. If the percentage was 22%, then depletion expense would equal gross income multiplied by 22%.

What is depletion's purpose? Depletion can be described as an accrual accounting method that allocates the cost of extracting natural resources like timber, minerals, or oil from the ground. Depletion, like amortization and depreciation, is a non-cash expense which lowers an asset's cost incrementally via scheduled charges to income.

What does Schedule C mean by depletion?

Introduction. Depletion refers to the use of natural resources through mining, drilling, quarrying, stone cutting, and other activities. A depletion deduction allows an operator or owner to account for the loss of product reserves.

What is the difference in cost depletion and percentage?

Another alternative to cost depletion would be percentage depletion. This is where a specific mineral percentage is multiplied with the gross income generated from a property during the tax period. Cost depletion, which is the same as depreciation in that the tangible asset's cost is ratably added to expense over a time period, is similar to cost depletion.