In short
A permanent difference is an item included in book income but never in taxable income, or the reverse. Examples are tax-exempt municipal bond interest, fines and penalties, and the nondeductible half of business meals.
Key takeaways
- No deferred tax is recognized for it, because it never reverses.
- Permanent differences make the effective tax rate differ from the statutory rate.
- Premiums on life insurance where the company is the beneficiary are another example.
Where it's tested
FAR: Income Taxes (Deferred Tax Accounting) — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
Which of the following is a permanent difference for income tax purposes, rather than a temporary difference?