Income Taxes Flashcards
2 types of differences between pretax GAAP financial income and taxable income
Permanent differences : either non taxable, nondeductible, or special tax allowances
Temporary differences : result in taxable or deductible amounts in future years (when reported amount of asset/liability is recovered/settled)
Permanent differences do not affect ____
The deferred tax computation.
They never reverse.
Only temporary differences create deferred tax assets and liabilities.
Permanent differences examples
Any tax-exempt interest
Fines and penalties
Life insurance premiums on key employees
Dividends received deduction
Temp difference
Happens when items of revenue and expenses enter into pretax GAAP financial income in a period before or after they enter into taxable income
Temp differences example
“Tax depreciation exceeded its book depreciation by X”
X * tax rate
Under GAAP what approach is used to determine income tax expense ?
Asset and liability approach
(Also referred to as balance sheet approach ) used to bring out amount the amount of income tax expense after the amount of deferred tax assets and liabilities have been determined
Valuation allowance
Contra account to the deferred tax asset
Net operating losses
When you have deductions that exceed your taxable income or negative taxable income
Can be carried back 2 years and forwarded 20 years
The justification for the method of determining periodic deferred tax expense is based on
Recognition of assets and liabilities
Effective tax rate calc.
Income tax expense / pretax income
Income tax expense
Taxable income x tax rate
Deferred tax return expense
Increase in deferred tax liability
- increase in deferred tax asset
A deferred tax asset represents
(Profit) Future tax savings and will be realized as deductions
All deferred tax assets and liabilities are classified as
Non-current.
And as a net amount
