Question

First Year of Operations - 2019	Dr.	Cr.
Cash	80,000
Accounts Receivable	110,000
Machine-bought January-1, 2019	100,000
Acc. Deprec.-Straight-Line- 5 years		20,000
Common Stock		180,000
Retained earnings
Home repair revenue		400,000
Depreciation expense	20,000
Salary of owner (Molly)	200,000
Other expenses	90,000
Totals	600,000	$600,000
There is no state income tax. Federal income tax rate: 21%

Molly owns all the stock of Elite Corporation, which she organized on January 2, 2019. Molly is CEO and receives an annual salary of $200,000. Elite will report depreciation expense of $20,000 on the corporate tax return.

Elite (a C corp.) has prepared a draft of the 2019 tax return which shows depreciation expense of $20,000 for 2019. Molly is considering changing her plans and electing to expense 100% of the cost of the equipment described above. How much federal income tax will be saved for 2019 as a result of making that change?

Answer 1

Solution:

	Amount in $
Expesnes - Changing plan to claim 100% of asset cost	100,000
Less: As per depreciation	(20,000)
Extra Deduction	80,000
Tax will be saved (21% of Extra deduction)	16,800

$16,800 federal income tax will be saved for 2019 as a result of making that change.