Search within this section
Select a section below and enter your search term, or to search all click Income taxes
Favorited Content
The tax effect of a retroactive change in enacted tax rates on current and deferred tax assets and liabilities shall be determined at the date of enactment using temporary differences and currently taxable income existing as of the date of enactment.
The reported tax effect of items not included in income from continuing operations (for example, discontinued operations, cumulative effects of changes in accounting principles, and items charged or credited directly to shareholders’ equity) that arose during the current fiscal year and before the date of enactment of tax legislation shall be measured based on the enacted rate at the time the transaction was recognized for financial reporting purposes.
Fixed assets |
Inventory |
||
---|---|---|---|
Book basis [A] |
$20,000 |
$9,000 |
|
Tax basis [B] |
9,000 |
10,000 |
|
Temporary difference: [A – B = C] |
11,000 |
(1,000) |
|
Federal tax rate for all future years [D] |
25% |
25% |
|
Federal deferred tax liability or (asset) [C × D] |
2,750 |
(250) |
|
Net Federal deferred tax liability at December 31, 20X1 |
$2,500 |
Step 1: Estimated taxable income: |
|||
---|---|---|---|
Estimated annual pretax book income |
$100,000 |
||
Less: |
|||
Dividends received deduction |
(1,000) |
||
Tax over book depreciation |
(3,000) |
||
Estimated taxable income |
$96,000 |
||
Step 2: Annual effective tax rate: |
|||
Estimated taxable income |
$96,000 |
||
Statutory federal income tax rate |
25% |
||
Estimated current income taxes payable |
24,000 |
||
Estimated federal deferred tax expense [$3,000 increase in taxable temporary difference × tax rate of 25%] |
750 |
||
24,750 |
|||
Less: research and experimentation tax credit |
(2,000) |
||
Estimated full-year income tax provision |
$22,750 |
||
Estimated annual effective tax rate [$22,750/ $100,000] |
22.75% |
||
Step 3: Income tax provision: |
|||
Year-to-date pretax income as of March 31, 20X2 |
$20,000 |
||
Estimated full-year effective income tax rate |
22.75% |
||
Income tax provision—first-quarter 20X2 |
$4,550 |
Step 1: Update estimate of taxable income: |
|||
---|---|---|---|
Remains unchanged from Step 1 above |
|||
Step 2: Recalculate annual effective tax rate: |
|||
Estimated taxable income |
$96,000 |
||
Statutory federal income tax rate |
30% |
||
Estimated current income taxes payable |
28,800 |
||
Estimated federal deferred tax expense [$3,000 increase in taxable temporary difference × tax rate of 30%] |
900 |
||
29,700 |
|||
Less: research and experimentation tax credit |
(2,000) |
||
Estimated full-year income tax provision |
$27,700 |
||
Estimated annual effective tax rate [$27,700/$100,000] |
27.7% |
||
Step 3: Income tax provision: |
|||
Year-to-date pretax income as of June 30, 20X2 |
$30,000 |
||
Estimated annual effective tax rate |
27.7% |
||
Year-to-date income tax provision on ordinary income |
$8,310 |
||
Less: first-quarter income tax provision |
(4,550) |
||
Second-quarter income tax provision |
$3,760 |
||
Adjustment to December 31, 20X1 deferred tax balances
|
|||
Deferred tax liability ($11,000 × [30% – 25%]) |
$550 |
||
Deferred tax asset ($1,000 × [30% – 25%]) |
(50) |
||
Net increase in income tax expense |
$500 |
||
Plus: second-quarter tax expense |
3,760 |
||
Total second-quarter tax expense |
$4,260 |
||
Total six months tax expense ($8,310 + $500) |
$8,810 |
PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
Select a section below and enter your search term, or to search all click Income taxes