You are viewing this post: Temporary vs. Permanent Tax Differences in Financial Accounting financial accounting
This video discusses the difference between a temporary tax difference and a permanent tax difference. Tax differences arise because “book income” (income computed for financial reporting purposes, according to GAAP) is different from “tax income” (income computed for purposes of calculating the amount of corporate income tax due). Temporary tax differences reverse over time, whereas permanent tax differences never reverse. For example, the IRS allows U.S. firms to accelerate their depreciation deductions. This often results in firms front-loading the depreciation expense of an asset (taking more depreciation in the early years of the asset, and less depreciation in the later years of the asset). This difference is only temporary, however, as the same total amount of depreciation is taken for both book and tax purposes. Thus, the difference is merely one of timing, and it reverses itself over time. Permanent tax differences never reverse. An example of a permanent tax difference is the proceeds from a life insurance policy. Life insurance proceeds are not taxable so they will never appear in taxable income. Life insurance proceeds do appear in book income, however, so this creates a permanent tax difference (it does not reverse in a later period).
This video was funded by a Civic Engagement Fund grant from the Gephardt Institute for Civic and Community Engagement at Washington University in St. Louis.
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Great job! Thank you for explaining this topic.
Sir, amazing. You are the best accounting tutor. Love your stuff.
Ind AS 12
Wow this is great explaintion sir.
Shout out Edspira. You have carried me through literally 60% of my classes in college
your examples are hilarious
Taking corporate tax online class and this summed up half of a chapter that was confusing the hell out of me. You're very good at explaining.
You're good
Thank you so much for making the concept so easy to understand…
You are always amazing in the explanation, thank you
Keep it up!
Best regards
Thank you for uploading these series of videos, it made life much more easier. Specially the examples are amazing!
Really good video (s)! Thank you!!
You're amazing!! Thank you so much!!
I want the tax accounting and timing
Thank you so much for all your help!!! Would not be able to go thru UCLA without your videos!!!
SO Good THX
you sir are amazing, keep doing your good work.
You explain things in a super clear way that is interesting and not at all boring.
OMG this video saved me so much time!!!THANKS A LOT!
You are literally saving my grade right now in my accounting course.
why did u subtract the 12,000 from 20,000 to get 8,000?
shouldnt u subtract the straight line 12,000 -20,000 to get -8000
my question is basically shouldnt u subtract book by tax?
helped a lot sir, sitting for the corp.accounting exam soon. thank you
How did those amounts under tax depreciation column come about? Are they just a given number or is there a calculation for the accelerated method of accounting for depreciation?
Really love your videos! I can not thank you enough.
Thank you! I LOVE your videos!
Can you explain why depreciation is a DTL item? Is it because the government wants to encourage firms to invest? Thanks.
Could you please do a video on Deferred Tax Asset and Liability? Thanks.