Final answer:
Income tax expense is comprised of current income tax expense, deferred tax expense, and other adjustments related to tax benefits and comprehensive income items.
Step-by-step explanation:
The income tax expense on a company's financial statement is generally composed of several components. The main parts include current income tax expense or benefit, which is the amount of income taxes payable or refundable for the current year, and deferred tax expense or benefit, which arises due to the temporary differences between financial reporting and tax bases of assets and liabilities. It also includes changes in the valuation allowances, investment tax credits, and tax impacts of other comprehensive income items, if applicable.
Companies calculate their taxable income by adjusting the financial statement income with various deductions and exemptions, as dictated by the tax code. Once the taxable income is determined, the effective tax rate, which is the average tax rate on the company's income, is applied. This rate is derived from considering all relevant tax benefits and laws applicable to the current tax year.
Income tax expense is comprised of several components, including:
- Deferred tax: This is the tax amount that is not paid immediately but is instead postponed to future periods. It may arise due to differences between tax and financial accounting rules.
- Amount income tax: This is the actual tax liability for the current period that needs to be paid to the government.
- Receivable current income tax: This represents income taxes that have been overpaid and are therefore owed back to the company.
- Payable net income: This represents the net income tax liability for the period, which is the difference between the actual tax payable and any tax receivable.