Book-Tax Differences Flashcards
Depreciation Expense
Book: Straight-line
Tax: MACRS
Temporary Favorable Difference
Organizational Costs
Book: Expensed as incurred
Tax: You can deduct the lesser of…
1. The actual expenses
2. $5,000 - reduced $1-for-$1 by the amount the expenses exceed $50,000. The remainder of the expenditures is deducted ratably over 180 months
Temporary Favorable Difference
Fines and Penalties
Book: Expensed as incurred
Tax: Not deductible
Permanent Unfavorable Difference
Accrued Warranty Expense
Book: Performance obligation
Tax: Deductible when the all-events test is met and economic performance has occurred
Temporary Favorable Difference
Life Insurance Premiums
Book: Net cash surrender with life insurance premiums paid
Tax: Not deductible
Permanent Unfavorable Difference
Federal Income Taxes
Book: Record in each period as if there is no difference in timing between the recognition of income or the recognition of those events in taxable income
Tax: Not deductible
Permanent Unfavorable Difference
Bad Debt Expense
Book: Allowance method
Tax: Direct write-off method
Temporary Unfavorable Difference
Accrued Vacation Expense
Book: Accrued liability
Tax: Deduction limited to the amount paid to employees during the year or the amount vested as of the last day of the tax year and is paid to employees within 2.5 months after the end of the year
Temporary Unfavorable Difference
Meals
Book: Accrued
Tax: Limited to 50% deduction
Permanent Unfavorable Difference
Entertainment Expense
Book: Accrued
Tax: Not deductible
Permanent Unfavorable Difference
Excess executive compensation for publicly-traded corporations
Book: Expense as incurred
Tax: Deduction limited to $1 million for some employees
Permanent Unfavorable Difference
Accrued Legal Expense
Book: Expense as incurred
Tax: Deductible if the all-events test has been met
Temporary Unfavorable Difference
Municipal Bond Interest
Book: Income as earned
Tax: Tax-exempt income
Permanent Favorable Difference
Key-Person Life Insurance Proceeds/Premuims
Not deductible
Permanent Unfavorable Difference
Interest income on tax-exempt bonds
Tax-exempt
Permanent Favorable Difference
