One of the differences between book income and taxable income is depreciation. In general Section 168 of the Internal Revenue Code allows businesses to accelerate their depreciation for tax purposes. This increases the expenses of the business thus reducing profit for tax purposes.
Modified Accelerated Cost Recovery System
Modified Accelerated Cost Recovery System (also known as MACRS) is an Internal Revenue Service method of depreciation under the 1986 Tax Code. It is used to calculate depreciation for tax purposes at a similar rate to that used in business under the Double Declining Balance Method.
When it comes to depreciation, no two businesses are alike. Unlike traditional straight line depreciation where the asset value is costed out to depreciation expense in equal increments over a given life expectancy, accelerated depreciation expenses the cost at higher values during the earlier accounting periods and at a lower amount towards the last half of the asset’s life expectancy.