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 these

Question

Quizplus · Accepted Answer

Accelerating deductions means reducing current taxable income, which, in turn, reduces current tax liability. However, if the after-tax rate of return is smaller (as in option B), then the tax benefit gained from reducing taxable income can be lower than the opportunity cost of not earning the higher after-tax return if the deduction is delayed. Therefore, a smaller after-tax rate of return decreases the benefits of accelerating deductions. The other options (A, C, D, and E) do not necessarily decrease the benefits of accelerating deductions.

Which of the Following Decreases the Benefits of Accelerating Deductions