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Income Taxes are federal and state tax obligations payable on business income. Income taxes are computed by completing tax forms available from the Internal Revenue Service. Generally, the form and content on an income tax return is similar to the income statement for a company.
Taxable income appearing on a tax return is computed using rules established by the IRS, which may afford the company some financial advantages such as the case with accelerated depreciation. This calculation method results in the income taxes that are payable from a company.
Accounting income is measured according to Generally Accepted Accounting Principles or GAAP. This calculation method results in the income taxes that are expensed by the company. The difference between these two methods of computing income taxes results in an inter-period tax allocation.
Income taxes payable for a company appear on the income statement. The inter-period tax allocation, known as deferred income taxes, appears in the liabilities portion of the balance sheet. |
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