[Rhea]

Please correct me on below if i am wrong, Also please give your thought of any additional Permanent and temporary differences, added/ subtracted to/from the book income to arrive at Taxable Income.

To determine taxable income,

Book income before taxes

+Rent received in advance

-Municipal bond Interest

-Depreciation deducted for income tax purpose in excess of depreciation

Life insurance premium(confused weather added/subtracted?)

+ long term loss accrual in excess of deductible amount

---

Taxable Income

Rhea
Yaeger CPA Review
"Stay the course"

[Gatorbates]

Forget about the rent received in advance. It's an unearned revenue, so it doesn't hit the IS.

Life insurance premium. Add back. It's non deductible on the tax return.

The rest looks fine. Don't overlook 50% meals and entertainment. 100% on books, 50% on tax return, so add back 50% of M&E.

Licensed Florida CPA:
B: 71, 73, 79
A: 83
R: 78 (expired), 77
F: 74, 74, 80

It's finally freaking over.

[JMOR]

Add back charitable contributions in excess of 10% of taxable income (C Corps).

REG - 86
FAR - 74,
BEC - 72,
AUD -73,

[Gatorbates]

I regress about the rent in advanced. I may be wrong about that one. I'll see if I can verify.

Licensed Florida CPA:
B: 71, 73, 79
A: 83
R: 78 (expired), 77
F: 74, 74, 80

It's finally freaking over.

[mjp44]

The rent received in advance is added to the book income to get taxable income. Tax basis income uses modified-cash basis for recoginizing income. It recognizes all cash when received, therefore you include the entire receivable, earned or not.

I always struggle in knowing when to +/- the permanent differences. Anyone got any tips?

FAR- PASSED (11/13)
REG- PASSED (2/14)
BEC- PASSED (5/14)
AUD- PASSED (8/14)

If it's important to you, you will find a way. If it isn't, you will find an excuse.

[Rhea]

Thanks guys for your inputs on above

@ Gatorbates–As said by mjp44 Rent received in advance is added back to Book income thats correct

@mjp44– here is the trick to remember Book Income(All Income-All Expenses)

+Non Deductible expenses

-Non taxable Income

---

Taxable Income(includes Taxable income and deductible expenses)

people add your tricks on above if any

Rhea
Yaeger CPA Review
"Stay the course"

[Gatorbates]

Licensed Florida CPA:
B: 71, 73, 79
A: 83
R: 78 (expired), 77
F: 74, 74, 80

It's finally freaking over.

[Anonymous]

I need a little help with Deferred Taxes. I understand that if Taxable Income>Book Income in current year, then in the future there will be a DTA. If Taxable Income<Book Income in current year, then in the future there will be a DTL.

What I don't understand is what to add/subtract to book income to arrive at Taxable Income. Every MCQ I work, I always get confused on if I should add or subtract a certain item from book income to arrive at taxable income. The problem isn't even distinguishing the temp. differences or perm. differences

My problem is ” I read the item and I say, ok that's a temp. difference. Or ok, that's a perm. difference. But then I just don't know whether to add/deduct it from book income to get taxable income. It just won't click.

Are there any tips to remembering what to add/deduct to book income to arrive at taxable income??

[h1522gq]

Set up a chart. We'll see if this formats correctly when it's posted…. (yeah, this is as good as I can get the formatting, but you probably get the idea)

Taxable Inc Difference I/S Inc

A) (10,000) 5,000 (5,000)

B) 50,000 (50,000) 0

C) 00000 N/A 1,000

---

(45,000)

X expected future tax rate(s)

---

Deferred Tax Liability (if positive)

Deferred Tax Asset (if negative)

Where A) is a TEMP difference due to tax depreciation exceeding book depreciation

B) is a TEMP difference due to pre-paid rental revenue

and C) is a PERM difference due to municipal interest earned

Permanent differences aren't included in the difference column. It also helps to total up what the taxable and I/S incomes are.

And don't forget that current deferred tax A&L are netted with each other and all non-current deferred tax A&L are netted with each other. In the example above, the depreciation liability is non-current whereas the pre-paid rent asset would *probably* be current (though the facts of the question might indicate a non-current asset).

Hope that helps!

FAR - 83
BEC - 8/2014
AUD - 10/2014
REG - 11/2014

[Author]

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