Question

Assume this is the last year an asset is being depreciated. Which method will give an income tax advantage?

A) Straight-line depreciation
B) Double declining balance depreciation
C) Sum-of-the-years-digits depreciation
D) MACRS (Modified Accelerated Cost Recovery System) depreciation

Answer 1

The correct answer is option d. The method that will give an income tax advantage when an asset is being depreciated for its last year is MACRS (Modified Accelerated Cost Recovery System) depreciation.

Step-by-step explanation:

The method that will give an income tax advantage when an asset is being depreciated for its last year is MACRS (Modified Accelerated Cost Recovery System) depreciation. MACRS is a depreciation method that allows taxpayers to recover the cost of certain assets over a specified period of time.

MACRS is a widely used method for tax purposes because it allows for accelerated depreciation in the early years of an asset's life, which can result in larger tax deductions. This can provide an income tax advantage to businesses.

For example, suppose a business purchased a piece of equipment for $10,000 and the MACRS depreciation schedule for that equipment specifies a 5-year recovery period. Using MACRS, the business may be able to deduct a larger portion of the equipment's cost in earlier years, resulting in greater tax savings.