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Accounting Chapter for Income Taxes
Financial Statement Tax Expense FAS 109 (ASC 740)
Current State Tax Expense Current Federal Tax Expense Deferred Federal Tax Expense Deferred State Tax Expense Income Statement Tax Expense
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Foot Notes
Financial Statements
Objectives Of "Accounting For Income Taxes" and Income tax Provision Process
The income tax provision includes
Current year taxes payable or refundable Any changes to future income taxes payable or refundable that result from differences in the timing of when an item is reported on the tax return compared to the financial statement
A company records these future income taxes payable or refundable on its balance sheet as
Deferred tax liability Deferred tax asset
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Objectives Of "Accounting For Income Taxes" and Income tax Provision Process
Objectives of ASC 740
ASC 740 applies only to INCOME taxes levied by:
U.S. federal government U.S. states and local governments NonU.S. ("foreign") governments
Companies report non income taxes as expenses in the computation of their net income before taxes
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Deferred Taxes
Calculation of the future tax effects attributable to temporary differences and tax carry forwards
Taxable Temporary Difference: Temporary differences that are initially favorable and create deferred tax liabilities Deductible Temporary Difference: Temporary differences that are initially unfavorable create deferred tax assets
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Valuation Allowance
Evaluate the Need for a Valuation Allowance for Gross Deferred Tax Assets
A valuation allowance is required if it is more likely than not some or all of the deferred tax asset will not be realized the in future.
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Accounting for uncertain income taxes
A tax position must be recognized when it has a morelikelythannot chance (more than 50%) of being sustained on examination. If the morelikelythannot threshold is not met the tax benefit/expense cannot be booked.
FIN 48 (ASC 740)
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Tax Positions
Previously filed positions Expected filing positions Decisions not to file tax returns in a particular jurisdiction Decisions to exclude potentially taxable income Choices made in classifying a transaction as taxexempt or taxable
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Accounting For Uncertainty In Income Tax Positions
Recognition process "more likely than not?": tax position on a particular account will be sustained on IRS examination based on its technical merits Amount expected to recognize Measurement process cumulative probability assessment of all likely outcomes of the audit and litigation process recognizes the amount that has a greater than 50 percent probability of being sustained on examination and subsequent litigation The amount not recognized is recorded as a liability on the balance sheet
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Accounting For Uncertainty In Income Tax Positions
Disclosures of Uncertain Tax Positions increases and decreases in liabilities related to uncertain tax positions as a result of tax positions taken during a prior period and current year
decreases in liabilities related to uncertain tax positions relating to settlements with taxing authorities decreases in liabilities related to uncertain tax positions as a result of a lapse of the applicable statute of limitations
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