FAR — Quick Sheet
Income Taxes (Deferred Tax Accounting)
Read time: ~5 minutes
One-minute revision
- Temporary differences reverse → deferred taxes; permanent differences never reverse → no deferred taxes
- Book expense/deduction later than tax, or book revenue taxed earlier → Deferred Tax Asset
- Book income recognized before tax (accelerated tax depreciation) → Deferred Tax Liability
- Valuation allowance: reduce DTA if more-likely-than-not (>50%) it won't be realized
- Use enacted rates; recognize rate-change effects in the period of enactment, not the effective date
COMMON TRAP: Permanent differences (like municipal bond interest) never create a deferred tax item — don't try to defer them.