What is the condition in which depreciation is added back in self-employment income calculations?

In self-employment income calculations, depreciation is added back to assess the actual cash flow available. This is important because depreciation is a non-cash expense, meaning it reduces taxable income without affecting the cash flow of the business. When calculating income for purposes such as loan applications or qualifying for credit, it is essential to present a picture of the actual cash available to the business owner.

By adding back depreciation, one ensures that the calculation reflects the true financial health of the business, allowing lenders or other entities to understand the cash resources accessible to the self-employed individual. This approach provides a more accurate view of cash flow, which is critical in evaluating the capability to meet financial obligations.