Question

The federal income tax deduction that a corporation takes under ASC 740 is what kind of book-tax difference?

Answer 1

ASC 740 related income tax deductions are temporary book-tax differences due to the variance in financial and taxable income calculations.

Step-by-step explanation:

The federal income tax deduction that a corporation takes under ASC 740 is considered a temporary book-tax difference.

This difference arises because financial accounting (book) income and taxable income are calculated differently for certain items in the short term. Under ASC 740, companies must record deferred tax liabilities or assets for these temporary differences that will result or reverse in the future,

which affects the effective tax rate on the company's income. The magnitude of these differences will generally even out over time as the temporary differences reverse.

Answer 2

The federal income tax deduction that a corporation takes under ASC 740 is classified as a temporary book-tax difference.

Explanation:

ASC 740, also known as Accounting Standards Codification Topic 740, addresses the accounting for income taxes. In the context of book-tax differences, temporary differences arise when the recognition of income or expenses for financial reporting purposes differs from their recognition for tax purposes. The federal income tax deduction represents a temporary book-tax difference because it originates from differences in timing regarding when the deduction is recognized for financial reporting and tax purposes.

To elaborate, temporary book-tax differences are those that result in future tax consequences, either deferred tax assets or liabilities. In the case of the federal income tax deduction, the corporation might deduct an expense on its financial statements in one period, while the tax deduction occurs in a different period for tax purposes. This gives rise to a deferred tax liability or asset, reflecting the future tax impact of the timing difference.

In summary, the federal income tax deduction under ASC 740 is identified as a temporary book-tax difference because it involves timing disparities in recognizing deductions for financial reporting and tax purposes, leading to deferred tax consequences. Understanding and appropriately accounting for these differences are critical aspects of financial reporting and tax compliance for corporations.