Which statement best describes the tax impact of depreciation for small businesses?

Which statement best describes the tax impact of depreciation for small businesses?

• A. Depreciation is a cash expense paid upfront.
• B. Depreciation increases cash taxes in the year it is recorded.
• C. Depreciation reduces taxable income by allocating asset cost over time.
• D. Depreciation has no effect on tax deductions.

Answer: (C)