How does per-annum depreciation for taxes work after the first year of depreciation?
The first method is the correct one. You bought an asset worth of $1000 and you put it on your depreciation schedule. What it means is that you get to write off the $1000 over a certain period of time (and not at once, as you do with expenses). But the value you're writing off is the $1000 regardless of how much you've written off already. Assume you depreciate in straight line over 5 years (that's how you depreciate computers for Federal tax purposes, most states follow). For the simplicity of the calculation, assume you depreciate each year as a whole year (no mid-year/mid-quarter conventions). The calculation is like this: If you sell the computer - the proceeds above the adjusted basis amount are taxed as depreciation recapture up to the accumulated depreciation amount, and as capital gains above that. So in your case - book value is the adjusted basis at the end of the year (EOY), depreciation this year is the amount you depreciate in the year in question out of the total of the original cost, and the accumulated depreciation is the total depreciation including the current year. In Maryland they do not allow depreciating to $0, but rather down to 25% of the original cost, so if you bought a $1000 computer - you depreciate until your adjusted basis is $250. Depreciation rates are described here (page 5). For computers (except for large mainframes) you get 30% depreciation, with the last year probably a bit less due to the $250 adjusted basis limitation.
At what point does my investment benefit from compounded interest? Monthly? Quarter? Yearly? Does it even benefit? I think you are mixing things. There is no concept of interest or compounding in Mutual Funds. When you buy a mutual fund, it either appreciates in value or depreciates in value; both can happen depending on the time period you compare. Now, let's assume at the end of the year I have a 5% return. My $10,000 is now $10,500. The way you need to look at this is Given you started with $10,000 and its now $10,500 the return is 5%. Now if you want to calculate simple return or compounded return, you would have to calculate accordingly. You may potentially want to find a compounded return for ease of comparison with say a Bank FD interest rate or some other reason.  So if $10,000 become $10,500 after one year and $11,000 after 2 year. The absolute return is 10%, the simple yearly return is 5%. Or the Simple rate of return for first year is 5% and for second year is 4.9%. Or the Average Year on Year return is 4.775%. "I would recommend to draw 25000 from annuity at 10% penalty. Its important to understand that you pay the interest on credit card debt per annum. You pay the penalty on withdrawal from low-yield annuity only once! Imagine that you don't pay your credit card debt for 3 years. It explodes from 25000 to 33116 (more than 8 thousands wasted!)! The average APR of your card debt is (minus for you) 9.82%. That is you pay your penalty each year! I didn't get exactly how your annuity works, but given 1% of ""guaranted"" effective interest, I wouldn't expect much above it. If you want some kind of mixed solution and gain some time, you could first pay off the card debts #2 and #3, then the APR goes down to (minus for you) 7.24, i.e. that of the card debt #1. However, even in this case you should draw money from annuity at penalty, if you can't pay it down in let's say 1.5 years." There are specific cases where you are required to use ADS: Required use of ADS.   You must use ADS for the following property. Listed property used 50% or less in a qualified business use. See chapter 5 for information on listed property. Any tangible property used predominantly outside the United States during the year. Any tax-exempt use property. Any tax-exempt bond-financed property. All property used predominantly in a farming business and placed in service in any tax year during which an election not to apply the   uniform capitalization rules to certain farming costs is in effect. Any property imported from a foreign country for which an Executive Order is in effect because the country maintains trade   restrictions or engages in other discriminatory acts. See publication 946. If none of those apply to your property - you may elect ADS. Why would you elect ADS when you're not required to use it? If you can't think of a reason, then don't elect it. For most people the shorter the depreciation period - the more they can deduct (or accumulate in passive losses) each year, and that is usually the desirable case. If you plan on selling in 10 years, keep in mind the depreciation recapture and consider whether the passive losses (offsetting regular income) are worth the extra tax in this case. What does not seem reasonable about your plan is the payment and buyout.  While $200/month payments are possible (but hard to find), buyouts are more typically in the five figure range. Given that your savings and desired payment for a car is low (the average car payment today is about 450/month), can you really afford the massive depreciation of a late model vehicle? Why not purchase a 2000 car now, and save the 200-300 per month?  In about a year you could move up to a ~5000 car.  You can buy a pretty nice car for 5K.   Myself, I am on my third year of driving a 4000 car. Here's how capital gains are totaled: Long and Short Term. Capital gains and losses are either long-term or   short-term. It depends on how long the taxpayer holds the property. If   the taxpayer holds it for one year or less, the gain or loss is   short-term. Net Capital Gain.  If a taxpayer’s long-term gains are more than their   long-term losses, the difference between the two is a net long-term   capital gain. If the net long-term capital gain is more than the net   short-term capital loss, the taxpayer has a net capital gain. So your net long-term gains (from all investments, through all brokers) are offset by any net short-term loss.  Short term gains are taxed separately at a higher rate. I'm trying to avoid realizing a long term capital gain, but at the same time trade the stock. If you close in the next year, one of two things will happen - either the stock will go down, and you'll have short-term gains on the short, or the stock will go up, and you'll have short-term losses on the short that will offset the gains on the stock.  So I don;t see how it reduces your tax liability.  At best it defers it. HMRC calls it: Averaging for creators of literary or artistic works, and it is the averaging of your profits for 2 successive years. It's helpful in situations like you describe, where income can fluctuate wildly from year to year, the linked article has the full detail, but some of the requirements are: You can use averaging if: you’re self-employed or in a partnership, and the business started   before 6 April 2014 and didn’t end in the 2015 to 2016 tax year  your   profits are wholly or mainly from literary, dramatic, musical or   artistic works or from designs  you or your business partner (if you’re   in a partnership) created the works personally. Additionally: Check that your profit for the poorer year, minus any adjusted amounts, is less than 75% of the figure for your better year. If it is, you can use averaging. Then, check if the difference between your profits for the 2 years is more than 30% of your profit for the better year. If it is, work out the average by adding together the profits for the 2 years, and divide the total by 2. Capital gains taxes for a year are calculated on sales of assets that take place during that year.  So if you sell some stock in 2016, you will report those gains/losses on your 2016 tax return. Purchase accounting requires that you mark assets, including PP&amp;E to fair value.  So let's say you bought a machine 5 years ago for $1,000 - you might have depreciated it to $250 on your balance sheet but it might actually be worth $900.