IncomeTaxExpenseBenefitCurrentIncomeTaxExpenseBenefitDeferredIncomeTaxExpenseBenefitIncome tax expense (benefit) is the total tax on income that a company recognizes for a period on its continuing operations, combining the tax it owes for the period with the change in its deferred taxes. A benefit, shown as a negative expense, arises when the company records a tax credit, usually because of a pretax loss or a tax refund or release.
It is often labeled the provision for income taxes. Subtracting it from pretax income gives income from continuing operations.
Accounting for income taxes is governed by ASC 740, and the total is tagged in XBRL as IncomeTaxExpenseBenefit. It has two parts. Current tax, tagged CurrentIncomeTaxExpenseBenefit, is the tax payable or refundable on the period's taxable income. Deferred tax, tagged DeferredIncomeTaxExpenseBenefit, reflects changes in deferred tax assets and liabilities, which arise when income or expenses are recognized in different periods for accounting and for tax. Regulation S-X Rule 5-03.11 limits this caption to taxes based on income, so sales, payroll, and property taxes are reported elsewhere as operating expenses.
The line covers continuing operations only. Taxes related to discontinued operations and to items of other comprehensive income are allocated to those items and reported net. Companies must disclose a reconciliation between their reported tax and the tax at the statutory rate, which explains the effect of foreign operations, tax credits, valuation allowances against deferred tax assets, and changes in tax law.
The deferred component is why tax expense and cash taxes paid can differ widely. Accelerated tax depreciation, for example, lowers current taxes and raises deferred tax expense. Dividing income tax expense by pretax income gives the effective tax rate, which is one of the inputs GeminIQ uses to convert EBIT into after-tax operating profit. A rate far from the statutory level, or large swings from year to year, usually point to one-time items that are worth reading in the tax footnote.
A: Income tax expense is an accrual measure that includes deferred taxes. Taxes paid is the actual cash sent to tax authorities during the period, disclosed separately, and the two can differ significantly.
A: A benefit usually arises from a pretax loss that can offset past or future taxable income, from releasing a valuation allowance, or from tax credits that exceed the tax owed.
A: No. Regulation S-X limits the caption to taxes based on income. Sales, payroll, property, and excise taxes are included in operating costs or netted against revenue.
In the metrics library: Effective Tax Rate
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