Question

A taxpayer incorrectly took a $5,000 deduction (e.g., incorrectly calculated depreciation) in 2019 and as a result, his taxable income was reduced by $5,000. The taxpayer discovered his error in 2020. The taxpayer must add $5,000 to his 2020 gross income in accordance with the tax benefit rule to correct for the 2019 error.a. trueb. false

Answer 1

Answer:

b. False

Explanation:

The tax payer has incorrectly deducted depreciation expense from his income which resulted in a lower tax being paid. Deductions reduce the tax and lesser income is taxed if deductions are incorrectly classified. The income taxed in this case will be from a lower tax bracket due to wrong deduction of depreciation expense of $5,000 and taxable income was reduced by $5,000 in 2019.