Listen to a Business English Dialogue About Modified accelerated cost recovery system
Stella: Hi Lydia, have you heard of the modified accelerated cost recovery system?
Lydia: No, I haven’t. What is it?
Stella: It’s a method used in the United States to depreciate certain types of assets for tax purposes more quickly than traditional methods.
Lydia: Oh, I see. How does it work exactly?
Stella: Well, instead of spreading the depreciation expense evenly over the asset’s useful life, the modified accelerated cost recovery system allows for larger deductions in the early years of the asset’s life, which can help businesses save on taxes.
Lydia: That sounds useful for businesses. Are there specific types of assets that qualify for this system?
Stella: Yes, certain tangible assets like machinery, equipment, and buildings used in a business are eligible for the modified accelerated cost recovery system.
Lydia: Is there a specific formula or calculation businesses need to use to apply this system?
Stella: Yes, there are different depreciation schedules based on the type of asset and its assigned recovery period, which businesses can use to calculate their depreciation expense each year.
Lydia: I see. So, does using this system mean businesses can deduct more of the asset’s cost earlier on?
Stella: Exactly. By front-loading the depreciation deductions, businesses can potentially lower their taxable income in the early years of owning the asset.
Lydia: That sounds like it could be beneficial for cash flow management.
Stella: Definitely. It allows businesses to keep more cash on hand in the short term, which they can use for other investments or operational needs.
Lydia: Thanks for explaining, Stella. It seems like an important aspect of tax planning for businesses.
Stella: You’re welcome, Lydia. It’s always good to understand how different tax strategies can impact a business’s finances.