THE PLAYGROUND
The book-to-tax bridge
A timing difference has a future.
LIVE EXPERIMENT
The book-to-tax bridge
Total income tax expense55
Before you move a sliderIf tax depreciation is faster, does total book tax expense necessarily fall?
Taxable income = 200 + 20 + 40 − 80 = 180
READ THE MECHANISM
Total tax expense is 55, an effective rate of 27.5%. Faster tax depreciation reduces current tax while creating a future taxable difference. A permanent nondeductible expense increases the effective rate without creating a deferred tax asset. Current tax expense is not necessarily the cash tax paid this period.
Model assumptions & units
Hypothetical single jurisdiction, positive taxable income, constant enacted rate, no opening differences, credits, losses, OCI or exceptions. A negative deferred change represents a DTA increase or DTL reversal depending on opening balances. This is a teaching model, not a tax return.