Podcast
Questions and Answers
Which of the following best describes the purpose of tax depreciation?
Which of the following best describes the purpose of tax depreciation?
- To immediately deduct the full cost of an asset in the year of purchase.
- To allocate the cost of an asset over its useful life. (correct)
- To avoid paying taxes on the profit generated by an asset sale.
- To increase the value of an asset over time for tax purposes.
What type of income typically includes wages, salaries, and profits from a business where the taxpayer actively participates?
What type of income typically includes wages, salaries, and profits from a business where the taxpayer actively participates?
- Capital Gain
- Passive Income
- Portfolio Income
- Active Income (correct)
A business purchases a machine for $50,000 with an estimated useful life of 10 years. Using straight-line depreciation, how much depreciation expense can they deduct each year?
A business purchases a machine for $50,000 with an estimated useful life of 10 years. Using straight-line depreciation, how much depreciation expense can they deduct each year?
- $2,500
- $10,000
- $50,000
- $5,000 (correct)
Which of the following factors is NOT relevant when calculating the annual tax depreciation expense for an asset?
Which of the following factors is NOT relevant when calculating the annual tax depreciation expense for an asset?
An individual sells stock for $15,000 that they purchased for $10,000. What type of income is generated from this sale?
An individual sells stock for $15,000 that they purchased for $10,000. What type of income is generated from this sale?
A self-employed consultant earns $80,000 in fees for services provided to clients. How would this income typically be classified for tax purposes?
A self-employed consultant earns $80,000 in fees for services provided to clients. How would this income typically be classified for tax purposes?
How does tax depreciation impact a company's taxable income?
How does tax depreciation impact a company's taxable income?
Which scenario would most likely generate active income?
Which scenario would most likely generate active income?
A taxpayer buys a building for $200,000 and later sells it for $250,000. Which of the following must be considered to determine the capital gain?
A taxpayer buys a building for $200,000 and later sells it for $250,000. Which of the following must be considered to determine the capital gain?
A business owner actively manages their rental properties. How is the income generated from these properties classified?
A business owner actively manages their rental properties. How is the income generated from these properties classified?
Flashcards
Tax Depreciation
Tax Depreciation
An income deduction that allows a taxpayer to recover the cost of certain property over time.
Active Income
Active Income
Income earned from performing services.
Study Notes
- Tax depreciation is an income deduction that allows a taxpayer to recover the cost or other basis of certain property.
- It is an annual allowance for the wear and tear, deterioration, or obsolescence of the property.
- Active income is income for which services have been performed.
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Description
Understand tax depreciation as an income deduction for recovering property costs. Learn how it accounts for wear and tear, deterioration, or obsolescence. Also, explore active income, which is income earned from performed services.
