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FAR Exam 2 - CH 19
Deferred Taxes w/ Timothy Eaton
Terms in this set (33)
What are deferred taxes
Difference between income tax expense and income tax liability
The tax expense is determined under?
FASB --> SEC -->
The income tax liability is determined under?
Internal Revenue Code
IRS --> Congress -->
The differences between income tax expense and income tax liability can be classified as
Temporary differences will...
reverse over time
Permanent differences will
What are permanent differences?
items that are recognized for financial accounting purposes but NOT for income tax purposes
Examples of permanent differences
- interest income received on tax exempt securities
- fines and expenses resulting from violation of the law
- premiums paid for life insurance on key officers/employees
permanent differences are a goal for
Will interest income received on tax-exempt securities increase or decrease taxable income?
decrease; bonds do not require taxes on bond income
Will fines and expenses resulting from the violation of the law increase or decrease taxable income?
increase; no benefit for illegal acts
Will premiums paid for life insurance on key officers/employees increase or decrease taxable income?
increase; not illegal but not a benefit
What are the steps to get to taxable income?
GAAP Income (given)
+/- permanent differences
+/- temporary differences
Temporary differences are made up of
Taxable temporary differences are
due to net taxable amounts in the future
Deductible temporary differences are
due to net deductible amounts in the future
What are some examples of taxable temporary differences?
Depreciation, installment sales
What are some examples of deductible temporary differences?
Warranty expense, unearned revenue
Basic rule for applying tax rates to deferred taxes
apply the yearly tax rate to calculate deferred tax effects
If future tax rates change, what tax rate should you use?
enacted tax rate
if new rates are not yet enacted into law for future years, what tax rate should you use?
current tax rate
NOL should be computed
each tax year
NOL of one year can be applied to offset what
taxable income of other years, possibly resulting in tax refunds
Historically, NOLs can be carried back _______ and carried forward _______ (carryback option) OR carried forward (only) _____
2 years; 20 years
What are NOLs
reasonable for businesses to help keep employees, avoid unemployment benefits, companies made up of individuals, benefit society
The major change to 2018 US tax law affected NOL by
no longer allows carrybacks in the future, carryforwards will be indefinite
Remaining NOLs are applied to the following 20-year period and any tax refunds are reported in the year of the original NOL
NOL JE for carrybacks (when allowable)
DR Income tax refund receivable
CR benefit on carryback
NOL JE for carryforwards
CR Benefit on carryforward (when profitable)
JE for deferred taxes
DR Income tax expense
CR Income tax payable
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