Module 14 - Defferred Taxes Flashcards
Two types of income tax expense?
- Income Tax Expense - Current
2. Income Tax Expense - Deferred
What is the difference between book income and taxable income?
Book income includes all income minus all expenses
Taxable income only inlcudes taxable income minus deductible expenses
How do you change book income to taxable income?
Add non-deductible expenses to your book expenses
Subtract non-taxable income to your book income
Is income (Ex: Rent received in advance) taxable in the year received or earned?
Taxable in the year received
The two types of differences between book income and taxable income?
- Temporary
2. Permanent
What causes temporary differences?
Using one method of accounting on the books and another method on the tax return
Ex: Accelerated Dep. on Tax Return, but SL on the books
These items will eventually both lead to the same amount of Income/Expense on both book and tax return
Temporary Examples: Estimated Warranty Liability Unearned Rent Revenue Plant Assets & Accumulated Depreciation Donated Assets Involentary Conversion of Assets Goodwill
What causes permanent differences?
Items that are on the income statement but are never on the tax return Ex Life Insurance Premiums Life Insurance Proceeds Interest recived on Muni Bonds Dividends received from domestic Corps 80% dividends non-taxable
What is deffered taxes codification?
ASC 740
What is a Deferred Tax Liability and how is it calculated?
When Book Income is higher than Taxable Income
Take the difference between Book & Taxable Income (called a Future Taxable Amount) and multiple by the future Tax Rate
How does estimated warranty expense figure in with Book Income and Taxable Income?
Estimated Warranty Expense is expensed in full on the Books
Estimated Warranty Expense is only deductible from Taxable Income when it is incurred
What is a Deferred Tax Asset and how is it calculated?
When Taxable Income is higher than Book Income
Take the difference between Taxable & Book Income (called a Future Deductible Amount) and multiple by the future tax rate
What are the JEs for recording a Deferred Tax Asset?
Deferred Tax Asset DR
Inc Tax Exp - Deferred CR
What are the JEs for recording a Deffered Tax Liability?
Inc Tax Exp - Deferred DR
Deferred Tax Liab CR
A Deferred Tax Liability is computed using?
Current tax laws, unles enacted future tax laws are different
What type of account is Income Tax Deferred?
Closing account which is closed out at the end of the year.
Is Deferred Tax Asset similar to a receivable?
Yes
If the Deferred Tax Asset account needs to be written down due to doubtfullness on the recognition?
Set up a valuation allowance account:
Income Tax Exp DR
Allowance to DTA CR
When moving to the BS, ensure to net the DTA with the Allowance account
No Allowance account is allowed for?
DTL
Operating Loss Carryback can be carried back to reduce how many previous years Operating Income?
2 years carrback, and then 20 years carryforward
The unused portion of carryback must be recognized as what?
A Deferred Tax Asset if not carried forward
DTA & DTL can be netted together with one exception?
They can only be netted together in the same country
Under IFRS, DTA & DTL are always what?
Non-current
Are deferred taxes recognized for permanent differences?
No, because no future tax consequences are created
What causes a reduction of loss due to NOL when carrying back and forward?
The reduced income tax liability from:
- The Income Tax Receivable generated from the carryback
- The Deferred Tax Assets generated from the carryforward
What are the effects of Deferred Tax Liability on the FS?
BS - Deferred Tax Assets is net against any valuation allowance accounts and then DTA & DTL are net against each other (current & non current are net against each other separately)
IS - Interest Expense - Deferred either increases (DTL) or decreases (DTA - Allow) Income from Continuing Operations
Depletion on an asset is a permanent difference?
Yes
What is the DRD?
Dividend Received Deduction:
If a corporation receives dividends from another corportation and:
Owns < 20% then DRD is 70%
Owns >20% 80% then DRD is 100%
