[Sheree]

Hello everyone,

I am working on retaking FAR for last week of October but for some reason I find the deferred tax liability/ asset very confusing. Can someone here with a good soul can share his/ her brief explanation about it? Pleaseeee…….

The more I study about it, the more I feel like I have not understand anything about deferred taxes.

Please no mean responses. I just dont know where to ask for help.

Thank you.

[jenuno01]

I'm a little rusty but I'll do my best. DTLs and DTAs are created due to temporary timing differences of recognizing transactions in the Income Statement (I/S), and in the Tax return. This is the way I think about it: When your income is higher in your tax return compared to your I/S, you pay more taxes. When you pay more taxes, you'll get a refund next year, which is your Deferred tax Asset (money you'll receive next year). When your income is lower in your tax return compared to your I/S, you don't have to pay as much taxes, so you'll get dinged next year and have to pay more, which creates your Deferred tax Liability (money you owe next year).

Does that make sense?

Class of 2012

[Sheree]

Thank you Jenuno01. It does make sense . I have to work on this topic more.

[jenuno01]

Yeah, that was just high level. You need to know how to calculate current and non-current portion too. I would just know the basics, don't freak out too much about this topic.

Class of 2012

[Mrs 300]

This is a tough topic. Are you using Becker? I found that I understood the topic, but the questions in Becker pretty difficult and made me question everything!

I always think about the impact that the item will have on the tax return. What is this item going to do to the tax return in the future? If I'm deducting more expenses now for tax (let's say for tax you use MACRS to depreciate assets and for book you use straight line), I will be liable for those taxes later. So these assets are creating a DTL.

A lot of items create DTAs. Let's think of a warranty reserve for example. You are allowed to set up a reserve for book purposes and DR Expense, CR Liability. But for tax purposes, you are not allowed to do this. So you have to add this back to your tax return. However, in the future, when this reverses, you will get to deduct this on your tax return. Hence, a DTA.

Clear as mud?

This is one of those topics that just clicks at some point. You'll wake up in the middle of the night and be like, “So THAT'S what that means!” 🙂 🙂

REG - 80 (Becker only)
BEC - 76 (Becker only)
AUD - 71, 76 (Becker only)
FAR - 65, 74, 81! (Becker, Wiley Test Bank, Ninja notes & Audio)

CPA Class of 2012 🙂

[Sheree]

@Mrs 300: i am using Yaeger. But I dont understand the lecture. Not a bit. So I did read Wiley hoping to understand better but got more confused instead. The topic bit me on my first exam so I am working on it now, hoping to get the extra 2 pts I needed.

[Anonymous]

I hated this topic too until I took REG and then it clicked for me. The only thing I remember is:

Tax Income > Book Income = Asset

Book Income > Tax Income = Liability

Permanent Differences: Tax Free Bond Interest; Corp. Officer Life Insureance Premium; Depletion

Try not to think any deeper. Over thinking this topic is a sure way to get killed.

[Anonymous]

I'm also using Yaeger, and the video on Deferred Taxes was horrendous. It might be the only video that I really disliked.

“Tax Income > Book Income = Asset

Book Income > Tax Income = Liability

Permanent Differences: Tax Free Bond Interest; Corp. Officer Life Insureance Premium; Depletion”

This seems like a pretty good starting foundation. From there, just start cranking out the MCQ's until it sinks in.

[Anonymous]

I hear you. I'm in the tax accounting lecture in Becker right now, and I'm ready to quit and label it an “Oh well, maybe I won't have any on my exam. Never going to understand it, so stop wasting time and move onto something more important like Gov't”. Wishful thinking. haha

[Author]

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