Question

A permanent difference is a difference μltiple-choice question that is:

a) Included at different × in financial reporting income and taxable income
b) Deducted each year on the tax return
c) Between pretax accounting income and taxable income that never reverses
d) That is always included on the tax return

Answer 1

A permanent difference is a difference between pretax accounting income and taxable income that never reverses, typically resulting from items recognized in one but not the other. Permanent differences are important as they have long-term effects on a company's financial statements and tax reporting.

Step-by-step explanation:

A permanent difference in the context of taxable income and financial reporting income relates to a difference that will not reverse over time. This means that certain income or expenses are recognized in a company's financial income but never in taxable income, or vice versa. The correct definition for a permanent difference is, therefore, 'c) Between pretax accounting income and taxable income that never reverses'. When thinking about temporary and permanent changes in fiscal policy, it's important to understand that permanent policy changes, such as tax cuts or spending increases, are expected to stay in place for the foreseeable future and tend to have a stronger impact on aggregate demand and individual behaviour than temporary changes.