Which of the following decreases the benefits of accelerating deductions?
A) Decreasing tax rates.
B) Smaller after-tax rate of return.
C) Larger after-tax rate of return.
D) Larger magnitude of transactions.
E) None of the choices are correct.

Question

Quizplus · Accepted Answer

Accelerating deductions reduces taxable income in the current period, thereby reducing current tax liability. However, if tax rates decrease in future periods, the benefit of reducing tax liability in the current period is reduced. Additionally, accelerating deductions may lead to a smaller after-tax rate of return on investments since the deductions reduce the tax base for investment earnings. This decreases the potential return on investments and therefore decreases the overall benefit of accelerating deductions. Choices A, C, and D do not decrease the benefits of accelerating deductions.

Which of the Following Decreases the Benefits of Accelerating Deductions