REG 4 - Difference Between Book and Tax Flashcards
Define temporary differences?
Items of income or expense that are recognized in one period for book but in a different period for tax. They cause timing differences between the two incomes but in the long run, there is no difference between book and tax.
Define permanent differences?
Items of income or expense that are recognized for book BUT never recognized for tax, or vice versa.
What is the taxable income for following items:
Book income = 560,000
- Royalty income is $17,000
- Book depreciation is $8,000
- Tax depreciation is $12,000
- Municipal bond interest is $4,000
1) Royalty income is taxed when received
2) Tax depreciation is higher by $4,000
3) Municipal bond interest is not recognized for tax
Total temporary differences:
17,000
- 4,000 (excess tax depreciation)
= 13,000
Total permanent differences
-4,000 (municipal bond interest not recognized for tax)
Book income - 560,000
+13,000
-4,000
= 569,000
