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What is Deffered Tax?
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Answer Posted / ali shaikh
To get into Deffered Taxes .. Lemme cleard the basis:
Book Income: Income calculated suing accounting principles
in accordance with GAAP.
Taxable Income: Income calculated in accordance with the
Government stipulated policies and procedures, that govern
tax laws.
Now put simply the concept of DEFFERED TAXES arises beacuse
there is a difference in the amount of tax liablity
calculated using accounting principles as VS. tax
liablities using Government mandated laws.
=> Therefore the reason why DEFFERED TAXES occour is due to
temporarily timings difference between book value and
taxable income.
Example: A company uses Straight-Line Method of
depreciation for its accounting records. But the law allow
an accelerated depreciation method of writing of an assets.
The company takes advantage of this due to favourable tax
treatment in as much as it's able to report lower income
and hence pay lower taxes.
by- Ali Shaikhpearz (ali_brainbugs@hotmail.com)
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