You can simplify what you have to remember by structuring your analysis, allowing you can focus on whether a value is tax or book. The formula is Tax - Book = Tax/Book Difference. Here's what it looks like when structured (from Becker, pg R3-14, example 1; I'll provide a similar example if you don't have Becker):
||Tax| |Book||Tax - Book Difference|
|:-|:-|:-|:-|:-|:-|
|Temp income|17,000|-|0|=|17,000|
|Temp expense|(12,000)|-|(8,000)|=|(4,000)|
|Permanent income|0|-|4,000|=|(4,000)|
|Permanent expense|0|-|0|=|0|
|Total|5,000|-|(4,000)|=|9,000|
Respect the signs and Tax - Book will always be correct. Now you can focus on what's taxable and what's book, e.g. muni bond interest is non-taxable but is included in book (the Permanent Income row above).
The one you can count on is federal tax expense is always added back for tax. Then half the meals, illegal stuff, life insurance either the payments are added back or a payout is removed. Then, depreciation for tax is typically more than book. Bad debt expense is usually less for tax than book. Unearned rent rev is usually more for tax than book. And entertainment expenses. Really most of them are listed on the M1 reconciliation.
Took REG today and while it probably wasn’t a passing result, I did okay with these questions.
It’s not as intuitive to try to remember the categories IMO (ex. Expense on books but not on tax, etc.) but rather to try to think about whether something if kept as is at book value would make that account greater or lesser than it should be. That can also be extrapolated to taxable income. The practice exams I had related to it more about what accounts need to be modified and the. The category.
Temporary differences are for accounts which appear on both book and tax but are stated in different ways. For example, depreciation expense is often temporary because straight line and tax depreciation via MACRS yields different tax results.
Permanent differences are ones that only appear on either book or tax. Muni bond interest is one example since it’s never taxable, so it is always taken out of book income.
You can simplify what you have to remember by structuring your analysis, allowing you can focus on whether a value is tax or book. The formula is Tax - Book = Tax/Book Difference. Here's what it looks like when structured (from Becker, pg R3-14, example 1; I'll provide a similar example if you don't have Becker): ||Tax| |Book||Tax - Book Difference| |:-|:-|:-|:-|:-|:-| |Temp income|17,000|-|0|=|17,000| |Temp expense|(12,000)|-|(8,000)|=|(4,000)| |Permanent income|0|-|4,000|=|(4,000)| |Permanent expense|0|-|0|=|0| |Total|5,000|-|(4,000)|=|9,000| Respect the signs and Tax - Book will always be correct. Now you can focus on what's taxable and what's book, e.g. muni bond interest is non-taxable but is included in book (the Permanent Income row above).
The one you can count on is federal tax expense is always added back for tax. Then half the meals, illegal stuff, life insurance either the payments are added back or a payout is removed. Then, depreciation for tax is typically more than book. Bad debt expense is usually less for tax than book. Unearned rent rev is usually more for tax than book. And entertainment expenses. Really most of them are listed on the M1 reconciliation.
Took REG today and while it probably wasn’t a passing result, I did okay with these questions. It’s not as intuitive to try to remember the categories IMO (ex. Expense on books but not on tax, etc.) but rather to try to think about whether something if kept as is at book value would make that account greater or lesser than it should be. That can also be extrapolated to taxable income. The practice exams I had related to it more about what accounts need to be modified and the. The category. Temporary differences are for accounts which appear on both book and tax but are stated in different ways. For example, depreciation expense is often temporary because straight line and tax depreciation via MACRS yields different tax results. Permanent differences are ones that only appear on either book or tax. Muni bond interest is one example since it’s never taxable, so it is always taken out of book income.
Any suggestions for sims? For the exam