Which statement best describes the typical tax deductibility of Goodwill impairment arising from acquisitions?

Which statement best describes the typical tax deductibility of Goodwill impairment arising from acquisitions?

• A. Generally not deductible for tax purposes
• B. Always deductible for tax purposes
• C. Never deductible for tax purposes
• D. Deductible only if impairment is reversed later.

Answer: (A)

Goodwill impairment is an accounting write-down of the value of goodwill after an acquisition. For tax purposes, that kind of impairment loss is not a deductible expense in most systems. The tax relief you get from acquired goodwill typically comes from amortizing the goodwill over a set period (for example, 15 years under many tax rules), not from recognizing an impairment loss. So the usual outcome is that impairment reduces book income but does not reduce taxable income in the year it’s recognized, which is why this is described as generally not deductible for tax purposes. The other statements don’t fit because impairment isn’t routinely deductible, nor is it reversed into a tax deduction later.

Goodwill impairment is an accounting write-down of the value of goodwill after an acquisition. For tax purposes, that kind of impairment loss is not a deductible expense in most systems. The tax relief you get from acquired goodwill typically comes from amortizing the goodwill over a set period (for example, 15 years under many tax rules), not from recognizing an impairment loss. So the usual outcome is that impairment reduces book income but does not reduce taxable income in the year it’s recognized, which is why this is described as generally not deductible for tax purposes. The other statements don’t fit because impairment isn’t routinely deductible, nor is it reversed into a tax deduction later.