Accounting for Corporate Income Taxes Flashcards

Accounting for Corporate Income Taxes Flashcards
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Total Income Tax Expense

This expense related to taxation has two components, a current piece called the current income tax expense as well as the deferred tax expense.

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Deferred Tax Assets and Liabilities

These are losses are gains that must be reported. They are tied to temporary differences in a company's taxable and accounting income.

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Corporate Income Tax Deductions

These include depreciation, ordinary or necessary expenses, amortization, the cost of goods sold, and money lost or gained due to the sale of assets.

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Corporate Taxable Income

The income earned by corporations that can be taxed. This is generally gross income with deductions subtracted, meaning not all revenues will be taxed.

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Double-Taxation

A process faced by certain corporations. In these businesses, the corporation is taxed as a separate entity and then the shareholders are taxed on the same dividends.

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With revenue of $123,000, cost of goods sold of $21,000, operating expenses of $14,000, and additional income of $6,000, your income taxes were $20,000. What was your pre-tax financial income?

123,000 + 6,000 - 21,000 - 14,000 = Pre-tax financial income

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Pre-Tax Financial Income / Earnings Before Taxes (EBT)

The amount of profit earned by a company after expenses are taken out but prior to the deduction of any applicable taxes, including income tax.

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14 cards in set

Flashcard Content Overview

You can use this set of flashcards as a study aid as you review the definition of pre-tax financial income, or earnings before taxes (EBT). You'll also be able to focus on corporate taxable income and the process of double-taxation. Temporary and permanent differences in taxable income are also covered by this set. You'll find cards that cover the steps for finding deferred income tax assets as well as deferred tax liabilities.

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Pre-Tax Financial Income / Earnings Before Taxes (EBT)

The amount of profit earned by a company after expenses are taken out but prior to the deduction of any applicable taxes, including income tax.

With revenue of $123,000, cost of goods sold of $21,000, operating expenses of $14,000, and additional income of $6,000, your income taxes were $20,000. What was your pre-tax financial income?

123,000 + 6,000 - 21,000 - 14,000 = Pre-tax financial income

Double-Taxation

A process faced by certain corporations. In these businesses, the corporation is taxed as a separate entity and then the shareholders are taxed on the same dividends.

Corporate Taxable Income

The income earned by corporations that can be taxed. This is generally gross income with deductions subtracted, meaning not all revenues will be taxed.

Corporate Income Tax Deductions

These include depreciation, ordinary or necessary expenses, amortization, the cost of goods sold, and money lost or gained due to the sale of assets.

Deferred Tax Assets and Liabilities

These are losses are gains that must be reported. They are tied to temporary differences in a company's taxable and accounting income.

Total Income Tax Expense

This expense related to taxation has two components, a current piece called the current income tax expense as well as the deferred tax expense.

Taxes: Temporary Differences

These occur when a company's taxable income and accounting practices do not match up. These conflicts generally resolve as time passes.

Finding Deferred Tax Liabilities: Steps

Depreciation Expense for Accounting - Depreciation Expense for Taxes = A. A x Tax Rate = Deferred tax liability

Your company's tax rate is 15%. You have an accounting depreciation expense of $60,000 and your depreciation expenses for tax purposes are $54,000. What is your deferred tax liability?

60,000 - 54,000 = 6,000. 6,000 x 15% = 900 for a deferred tax liability.

Taxes: Permanent Differences

These are differences between a company's tax income and accounting that generally only impact one year and that do not ever get reversed.

Municipal Bond Interest

This is money a company earns from a loan taken out from the state or city. The GAAP recognizes this as income but it is not taxable, making it a permanent tax difference.

Finding Deferred Income Tax Assets: Steps

Taxable income of a company - Tax recorded on the income statement = Deferred Income Tax

Your company's taxable income is $100,000 but you only reported $95,000 on your income statement. What do you have to record as a deferred income tax asset?

100,000 - 95,000 = 5,000 for a deferred income tax asset.

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