Question

Which of the following items is not a reconciling item in the income tax footnote?

1) compensation deduction related to incentive stock options
2) compensation deduction related to nonqualified stock options that were expensed for financial accounting purposes
3) dividends received deduction
4) state and local income taxes

Answer 1

The dividends received deduction is not a reconciling item in the income tax footnote.

Step-by-step explanation:

Reconciling items in the income tax footnote are adjustments made to the financial accounting income to arrive at the taxable income reported for tax purposes. They are listed in the income tax footnote of a company's financial statements. Some examples of reconciling items include differences in depreciation methods and rates used for financial and tax reporting, unrecognized tax benefits, and changes in tax laws.

Based on the options given, the item that is not a reconciling item in the income tax footnote is the dividends received deduction. The dividends received deduction is a tax benefit that reduces a corporation's taxable income by a percentage of the dividends received from a domestic corporation.