Depreciation a real benefit?

Chris Beggy news at kippona.com
Sun Nov 4 15:06:55 PST 2001


"Christian A. Gregory" <christian11 at mindspring.com> writes:


>> depreciation is
>> a way to increase current tax revenue (by stretching out the
>> _ultimately allowable_ deduction) at the expense of future tax
>> revenue. AMT is also a mechanism to do this, albeit more directly by
>> deferring a deduction that's allowable only if you have other income to
>> get taxed on.
>
> Are depreciation charges indexed to inflation? Or are the charges against
> the value in the purchase year?

The latter, although I would use the term "cost" in the purchase year rather than value. Depreciation is done on a schedule for a given asset class, selected in the year the first depreciation expenses are reported.


> Also (and I'm really asking), wouldn't depreciation only increase current
> tax revenue compared to leasing or consumption taxation (ie full taxation in
> the first year)? If charges are inflation indexed, depreciation seems more
> like a net loss on the gov't income from taxes.

In the US, the profit before taxes shown on the Profit and Loss/Income statement of each firm is subject to Federal income tax, not individual purchases of capital(depreciating) or consumed(expensed) items by the firm.

Chris



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