Brainscape_Flashcards
What is taxable income for business firms?
Taxable Income = Gross Income - Expenditures (excluding capital expenditures) - Depreciation and depletion charges.
What is the corporate income tax rate introduced by the Tax Cuts & Jobs Act of 2018?
A flat rate of 21% for all corporations.
What are capital expenses?
Expenditures for depreciable assets like facilities or equipment with a useful life exceeding one year, recovered through depreciation. It also includes expenditures for non-depreciable assets like land.
What is the formula for combined federal and state incremental tax rate?
Combined Tax Rate = ΔState Tax Rate + (ΔFederal Tax Rate)(1 - ΔState Tax Rate).
How are after-tax cash flows calculated?
After-tax cash flow = Before-tax cash flow - Income taxes. Income taxes = Taxable Income × Incremental Tax Rate.
What is the role of depreciation in taxable income?
Depreciation reduces taxable income, as it is subtracted from gross income along with other expenses to determine taxable income.
What are capital gains and losses for non-depreciated assets?
Capital gain occurs when the selling price exceeds the original cost basis, and capital loss occurs when the selling price is less than the original cost basis.
What is bonus depreciation?
Bonus depreciation allows a percentage of an asset’s cost to be expensed immediately, reducing taxable income in the year of purchase.
What is the Investment Tax Credit (ITC)?
A tax incentive allowing businesses to deduct a percentage of a purchase price as a credit, directly reducing taxes owed rather than taxable income.
How is the after-tax rate of return for non-depreciable assets estimated?
After-tax rate of return = (1 - Incremental Tax Rate) × Before-tax rate of return. This approximation does not hold when bonus depreciation is used.
