Which set of rules must be followed for computing depreciation for tax returns?

The correct response focuses on IRS rules, which outline the specific guidelines and methodologies that must be adhered to when calculating depreciation on tax returns. The IRS provides various methods, such as the Modified Accelerated Cost Recovery System (MACRS), which outlines how assets can be depreciated for tax purposes. These rules are designed to ensure compliance with tax laws and optimize tax obligations.

Understanding IRS rules is crucial because they dictate not only how depreciation is calculated but also the various categories of assets, useful life, and recovery periods applicable for tax deductions. This affects the amount of tax liability a business incurs and can have significant financial implications.

While financial accounting standards, GAAP rules, and tax accounting methods are relevant to depreciation practices, they primarily cater to reporting and financial statements rather than specifically focusing on tax compliance as the IRS rules do. Hence, for accurately preparing tax returns, adherence to IRS guidelines is essential.