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The book-to-tax bridge
A timing difference has a future.
Live experiment
The book-to-tax bridge
Total tax expense55
Before you move a sliderIf tax depreciation is faster, does total book tax expense have to 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 lowers the tax due now and books the difference as deferred. The nondeductible expense raises the effective rate and creates no future benefit. Tax expense is not the cash paid this year.
Model assumptions and units
One made-up jurisdiction, positive taxable income, a constant enacted rate, no opening differences, credits, losses or exceptions. A negative deferred change is a DTA increase or a DTL reversal depending on the opening balance. A teaching model, not a tax return.