Tax depreciation in the United States is currently calculated under which system?

• A. Straight-Line Depreciation System
• B. Sum-of-the-Years'-Digits Method
• C. Units-of-Production Method
• D. Modified Accelerated Cost Recovery System (MACRS)

Answer: (D)

Verified step by step guidance

1. Understand the concept of tax depreciation: Tax depreciation is a method used to allocate the cost of tangible assets over their useful life for tax purposes.
2. Learn about the Modified Accelerated Cost Recovery System (MACRS): MACRS is the current system used in the United States for calculating tax depreciation. It allows for accelerated depreciation, meaning higher depreciation expenses in the earlier years of an asset's life.
3. Compare MACRS with other methods: Unlike Straight-Line Depreciation, Sum-of-the-Years'-Digits Method, or Units-of-Production Method, MACRS uses specific depreciation schedules and percentages based on asset classes defined by the IRS.
4. Understand the classification of assets under MACRS: Assets are categorized into classes such as 3-year, 5-year, 7-year, etc., depending on their type and use. Each class has a predefined depreciation schedule.
5. Review the importance of MACRS in tax reporting: MACRS is essential for businesses to calculate depreciation for tax purposes, as it impacts taxable income and the amount of taxes owed.