Yes, the Doctor likely makes to much to even deduct the interest on student loans from their taxes where a company could in effect deduct both the interest and principal from those student loans as an expense.
Deducting every cost associated with a job would be a huge tax benefit that simply doesn’t apply to people. It’s one of the ways that referring to tax burdens based on income as defined by the tax code is misleading.
First of all you can deduct interest but the standard tax deduction already given usually accommodates a lot of that deduction. Companies can’t deduct principal payments either. There is a crazy amount of people including this article that have no concept of what taxes are. Taxes are not on gross income they are on profit. Calculating taxes on gross income, as this article says, would be outrageous. Take this articles reference that a deduction on stock paid to employees should not be given. The employees who receive that stock have to pay taxes on that money so if it was taxed it would then be essentially double taxed. Also this article states that accelerated depreciation does not encourage investment, and that is just bollocks. Anyone who works in finance would know that accelerated depreciation allows better cash flow on your investment and can make a project feasible or not feasible.
> Companies can’t deduct principal payments either.
The initial cost would be tax deductible and could rollover across multiple years, therefore in effect the principle is deductible even if the specific payments aren’t. The way the deduction actually works is actually better than simply deducting principle payments from the loan due to time value of money.
The issue with accelerated depreciation is it’s a subsidy. The government is paying interest on it’s debt so companies can defer tax payments, that’s directly costing actual taxpayers money. Further, communism has already been tried and it’s a bad idea, we really don’t want central planning as part of the tax code because it’s a bad idea. Subsides for industry X over industry Y has all the same issues.
Principle is not at all “in effect deductible” in the slightest. If you spent money on expenses that is deductible whether you borrowed that money or not and has absolutely nothing to do with principal. On the second point accelerated depreciation is NOT a subsidy in the slightest either and not at all related to government debt. Depreciation is already a delayed acknowledgment of expenses. Without depreciation someone would deduct the entire amount of a cost immediately and pay much lower taxes. Accelerated depreciation costs taxpayers nothing. The government is not funding anything, the government is collecting less tax up front but more over time. Whether the government has liabilities is irrelevant. I don’t understand the point you are making on communism or how that relates at all unless you assume all tax collected is communist.
> Depreciation is already a delayed acknowledgment of expenses. Without depreciation someone would deduct the entire amount of a cost immediately and pay much lower taxes.
No, if a company buys say land they can’t deduct anything because land retains value until the point of sale. The same is true buying stock or other items that maintain value over time. The general rule is something is a deductible expense at the point of destruction or sale not purchase.
Depreciation is therefore an acceleration of that process. Companies for example used printing presses for a hundred years meanwhile during much of that time the actual value increased above it’s purchase price due to inflation. It’s surprisingly common for companies to sell something for a profit that they have already fully deprecated.
> I don’t understand the point you are making on communism
All specific tax exemptions for business are communist in nature because they replace market forces with government choices. It’s very obvious in the case of farm subsidies for example, but it’s a generalizable rule that government subsidies reduce market efficiency by incentivizing inefficiency.
Your comment again makes no sense. Land is NOT depreciable and neither is stock. Depreciation is not an exemption of taxes. You must realize that selling something that has been depreciated results in you selling it for a profit and thus is taxable. Depreciation reduces the cost basis. I’m not sure if at this point you are trolling by your comments always saying the opposite of the actual tax laws.
I never said land deprecated try reading my comment again: “if a company buys say land they can’t deduct anything” that’s an example of default behavior. Try rereading what I actually said where again you can deduct the purchase price at the time of sale not purchase.
As to depreciation being an exception that’s what it means when you change the baseline rules of a system with new rules. By default you take the deduction on sale, depreciation means you can take deduction early. It’s literally called “Modified Accelerated Cost Recovery System (MACRS)” the entire point of it is to speed things up rather than as you suggest slow anything down. Thus removing depreciation from the tax code and companies would need to wait years or even decades or deduct these costs from their profits. Thus as I said before it’s a hand out which happens to be built into the tax code.
It’s not a hand out whatsoever. Firstly you are making an assumption that everything that is depreciated can be sold when the majority of depreciated items are not sold, ever. They get used up over time, kind of like... depreciation. That is why that capitalized items are capitalized, not land, which again _does not get depreciated_ so I don’t know why you would use that as your comparison for normal deduction. You are looking at this absolutely backwards. Let’s say depreciation was eliminated completely in your perfect world, because you say it’s a hand out right? Now you buy something for $100,000, say construction of a building, that building falls apart and breaks down after 39 years, it was not sold. Now you have nothing to sell and never got any deduction. Now who wants to spend their money on something that is never recognized as a cost? Depreciation is there to normalize the recognition of that building falling apart. Of course all types of items depreciate at different time periods which are all defined by law. Unless you are in favor of there being no deductions for taxes of all costs, meaning you tax gross revenue, there is no reason not to depreciate. Accelerated depreciation means you pay less tax and have more money at the start of a project when it is needed and pay more to the government later when it has stabilized. Again depreciation reduces cost basis, so even if you sold it, you pay additional taxes on that when you sell it, offsetting the benefit of your depreciation. Now where is the hand out in that?
Now you buy something for $100,000, say construction of a building, that building falls apart and breaks down after 39 years, it was not sold.
The day it falls down it stops being useful, the day before that you have full use and therefore value of the building.
Or as I said several posts ago: “The general rule is something is a deductible expense at the point of destruction or sale not purchase.” Sure, it burned in a fire fine assuming you don’t have insurance then it’s a loss at that point.
Really equipment is generally binary either it works or it’s broken, unless you’re selling it then it’s exactly as useful on day 2854 as 2855. Worse, well maintained equipment lasts far beyond the accelerated depreciation benchmarks used. Anything not thrown away the day it’s theoretical value hit’s zero is unambiguously a subsidy, but so is anything with scrap value etc. But, as I clearly demonstrated the idea of depreciation it’s self was created as a subsidy.
> Accelerated depreciation means you pay less tax and have more money at the start of a project when it is needed and pay more to the government later when it has stabilized.
People say stuff like this, yet hopefully suggesting the government hands out zero interest loans to group X raises red flags. Depreciation is a subsidy in effect a zero interest loan and that in and of it’s self is a problem. Opportunity cost is a huge deal and trying to ignore that is why central planning fails.
And who decides when it has “stopped working.” It is standardized to 39 years because it is impossible to prove for every single item individually and people would then be incentivized to not take care of their possessions so they can finally deduct it. This is all besides my original point which is that accelerated depreciation is a big factor in determining whether projects occur, the opposite of the article. You yourself are calling it a subsidy and a loan, and so even if your reasoning is wrong, would agree with me that it is something that helps make a project feasible. So all this arguing is just you trying to argue. Get your CPA and talk to me again.
Initially the company, though audits and penalties help keep them honest.
> accelerated depreciation is a big factor in determining whether projects occur
And clearly that’s a problem. Just as government farm subsidies waste money growing excess food accelerated depreciation causes significant economic waste.
> CPA
Ahh, there’s your problem a CPA has nothing to do with economic issues. This is an economic and thus a policy issue but you’re trying to argue based on the existing law rather than the underlying reality. I don’t expect you to get a in depth education on the topic, but if you’re interested I can recommended some good books to get you started.
But to summarize a huge body of work, the broken window fallacy demonstrates that economic activity isn’t inherently beneficial. Maximum efficiency isn’t equivalent to maximum GDP etc. As such policies that increase economic activity can be and generally are detrimental.
Can you deduct the interest paid on student loans in subsequent years? I think this is possible in some countries (iirc Belgium always deducting certain interest payments for personal taxes)
There’s a low cap ($2500) on the amount of interest that can be deducted and if the tax payers income gets too high ($85k for a single filer) you can’t deduct anything.
Not to mention that unless you're taking losses from other investments or doing fairly complicated things with your income, the standard deduction is likely high enough that you don't benefit at all from student loan interest deductions. So other people without interest get the same deduction as you anyway.
That’s the one bright spot, student loan interest is above the line (i.e. can be taken in addition to the std deduction). But the other limitation are very low.
