Waylon Company has a 25% marginal tax rate.The company reports depreciation expense of $10,000 on its annual report for shareholders,which is based on GAAP.For its federal income tax return,the company chooses a tax depreciation method that results in a depreciation deduction of $12,000.What is the difference in taxes for the two different depreciation methods?

Question

Quizplus · Accepted Answer

The difference in depreciation between the two methods is $2,000 ($12,000 - $10,000). With a 25% marginal tax rate, the difference in taxes due to the different depreciation methods is 25% of $2,000, which equals $500.

Waylon Company Has a 25% Marginal Tax Rate