Question

An asset or liability's original value for tax purposes reduced by any amounts included to date on tax returns is referred to as the

O book value
O tax basis
O historic
O cost

Answer 1

The correct term for an asset or liability's original value reduced by amounts included on tax returns is the 'tax basis.' It is important in determining taxable gains or deductible losses upon the disposal of an asset.

Step-by-step explanation:

The original value of an asset or liability for tax purposes, reduced by any depreciation, amortization, or other cumulative amounts reported on tax returns, is referred to as the tax basis. This is a fundamental concept in accounting and finance, crucial for understanding how taxable gains and deductible losses are calculated. The tax basis, which starts with the historical cost of an asset, is adjusted over time for various tax-related items such as improvements, depreciation, and deductions taken on tax returns.

In practice, the tax basis is used to determine the gain or loss on the disposal of an asset. For example, if you purchase a piece of machinery for your business at $10,000 and claim a depreciation deduction of $2,000 on your tax return, the tax basis of that machinery will be reduced to $8,000. This adjusted figure will then be used to calculate any taxable gain or deductible loss upon the sale or other disposition of the machinery.