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Simple English definitions for legal terms
Modified Accelerated Cost Recovery System
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A quick definition of Modified Accelerated Cost Recovery System:
Modified Accelerated Cost Recovery System (MACRS) is a way of calculating how much a business can deduct from their taxes for the cost of buying and using assets like equipment or property. It allows businesses to recover the cost of these assets over a set period of time, which is usually shorter than the actual lifespan of the asset. This system helps businesses save money on their taxes and encourages them to invest in new equipment and property.
A more thorough explanation:
The Modified Accelerated Cost Recovery System (MACRS) is a method of depreciation used for tax purposes in the United States. It allows businesses to recover the cost of certain assets over a specified period of time, typically through annual deductions on their tax returns.
For example, let's say a business purchases a piece of equipment for $10,000. Under MACRS, the business can deduct a portion of the cost each year for a set number of years, rather than deducting the entire cost in the year of purchase. The specific deduction amounts and time periods depend on the type of asset and its useful life.
MACRS is designed to encourage businesses to invest in new equipment and other assets by providing tax incentives. By spreading out the cost of an asset over several years, businesses can reduce their taxable income and potentially lower their tax liability.
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