[Anonymous]

I’m using Becker material and I have difficulty determining the differences in taxable income and pretax financial income.

– When I find an item that’s a temporary difference, how do I know when to add or subtract the item to find Net Temporary Differences?

– When I find an item that is a permanent difference, how do I know if it should be part of the Tax return calculation or the Income Statement calculation and if I should add or subtract it?

I’ve been through the section several times, but I can’t seem to grasp the bigger picture.

[Anonymous]

– When I find an item that's a temporary difference, how do I know when to add or subtract the item to find Net Temporary Differences?

This is just something you have to logically think through.

– When I find an item that is a permanent difference, how do I know if it should be part of the Tax return calculation or the Income Statement calculation and if I should add or subtract it?

It depends on what it is. For instance, municipal bond interest is not taxable. So if it's not taxable, it obviously won't appear on a tax return and will just be income on the income statement.

If you are having trouble with concepts, I would highly recommend either switching or supplementing with a “teaching” review course. Becker just reviews concepts they assume you already know, but Yaeger (and I think Roger, too) actually teach you the concepts from scratch.

Sorry I couldn't really help more.

[Justinnnn]

I do a tax provision for a public company. Here's a crash course.

Temporary:

Expense Items – If the Tax expense is higher than the GAAP expense, you would decrease the item from Pre-Tax Book Income to arrive at taxable income. This results in a deferred tax liability because in the future, GAAP expense will be higher than tax expense resulting in an addback to book income. An example is MACRS tax depreciation which often depreciates assets quicker than GAAP.

If the book expense is higher than the tax expense (Ie a legal fee that is expensed under GAAP but has to be amortized as an asset for tax purposes) causes you to “add” to pre-tax book income to arrive at taxable income. This creates a deferred tax asset because in future years, you will get a tax deduction causing a decrease to book income (in year 1, GAAP took deduction, in year 2-17, tax gets amortization for that same deduction)

Income Items – If the tax income item (such as a deferred revenue recognized for tax purposes) is higher than book income, you increase income. If tax income is lower than book income. It works the opposite way of expenses.

Permanent differences – This will be treated the same way as income/expenses above except is does not create a deferred tax asset. For example, you cannot deduct federal income taxes in calculating federal taxable income (since federal tax is assesed on the taxable income, this would be circular). In the future, you will never have a deduction, it is permanently gone. In this case, GAAP expense is higher than tax expense, so you increase to pre-tax book income to arrive at taxable income. But you never record a deferred tax asset.

REG 80 2/7/11
FAR 91 10/8/11
AUD 97 11/22/11
BEC 96 2/4/12

CPA 3/15/13

[Justinnnn]

And to add, although I have my gripes about Becker BEC, Becker nailed deferred taxes and most of FAR in my opinion. Again I work with this stuff.

REG 80 2/7/11
FAR 91 10/8/11
AUD 97 11/22/11
BEC 96 2/4/12

CPA 3/15/13

[Author]

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