If monthly depreciation expenses increase, how would it affect income tax on profit?

If monthly depreciation expenses increase, how would it affect income tax on profit?

• A. It would increase
• B. It would decrease
• C. It would remain the same
• D. It would become unpredictable

Answer: (B)

When monthly depreciation expenses increase, they reduce the taxable income reported by a business. Depreciation is considered a non-cash expense that allows companies to allocate the cost of tangible assets over their useful lives. By increasing depreciation expenses, a company reflects lower profits on its income statement. Since income tax liability is based on taxable income, a decrease in profits due to higher depreciation results in a lower income tax expense. Thus, if a company has higher depreciation expenses, it directly leads to a decrease in the amount of income that is subject to taxation, ultimately reducing the amount of income tax owed. This is why the appropriate answer is that it would decrease.

When monthly depreciation expenses increase, they reduce the taxable income reported by a business. Depreciation is considered a non-cash expense that allows companies to allocate the cost of tangible assets over their useful lives. By increasing depreciation expenses, a company reflects lower profits on its income statement. Since income tax liability is based on taxable income, a decrease in profits due to higher depreciation results in a lower income tax expense.

Thus, if a company has higher depreciation expenses, it directly leads to a decrease in the amount of income that is subject to taxation, ultimately reducing the amount of income tax owed. This is why the appropriate answer is that it would decrease.