Income Tax Expense
What is Income Tax Expense?
Income tax expense is the tax expense the business recognizes, not necessarily what they will actually pay in tax for the period.
![ix1](https://seeaccountingnow.online/wp-content/uploads/2020/04/ix1.jpg)
How it Works
A business will earn income during an accounting period.
![ix2](https://seeaccountingnow.online/wp-content/uploads/2021/06/ix2.jpg)
It will also incur expenses.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/ix3.jpg)
The difference will show profit before taxation.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/ix4.jpg)
Before preparing the period-end income statement, the business will need to calculate income tax expense.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/ix5.jpg)
This is done by multiplying the profit before tax by a tax rate, or rates.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/ix6.jpg)
It is unlikely that income tax expense will be the same as income tax payable.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/ix7.jpg)
Income tax expense is only the amount of tax expense the business recognizes and shows on its period-end income statement.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/ix8.jpg)
Income Tax Expense v’s Tax Payable
The difference between income tax expense and tax payable is often due to varying depreciation rates on assets.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/ix9.jpg)
Straight Line Depreciation
For reporting purposes, the business may use the straight-line method of depreciation to depreciate assets.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/ix10.jpg)
This allows them to apply the matching principle to depreciation expense.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/ix11.jpg)
That is, depreciation expense is matched to revenue in the period that revenue was earned.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/ix12.jpg)
This way, the business can report the asset’s depreciation expense in the income statement in the accounting period in which it was used.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/ix13.jpg)
Accelerated Depreciation
When preparing the actual tax return, a business may apply an accelerated depreciation rate to its assets.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/ix14.jpg)
With accelerated depreciation, depreciation is higher in the short term.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/ix15.jpg)
This means non-cash expenses will be higher initially.
![ix16](https://seeaccountingnow.online/wp-content/uploads/2021/06/ix16.jpg)
As a result, profit before tax is lower.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/ix17.jpg)
This, in turn, means tax payable will be lower.
![ix18](https://seeaccountingnow.online/wp-content/uploads/2021/06/ix18.jpg)
© R.J. Hickman 2020