Question

Which of the following is LEAST likely to create a book/tax difference?

a. Payment of federal income tax

b. State income tax expense in a tax loss year

c. Vacation accruals under the recurring item exception

d. All of the above are very likely to create a book/tax difference

Answer 1

Option d, All of the above are very likely to create a book/tax difference

Reason: Payment of federal income is deductible for book but not for tax. Hence it creates a permanent difference.

Vacation accruals under the recurring item exception a book / tax difference arises, when it meets the requirements of the IRC but is deferred or otherwise not treated as current expense for book purpose.

State income tax expense in a tax loss year creates a deferred tax asset for the next tax year.