Did you realize that some companies actually utilize two sets of books? Companies often have a set of books for income taxes and one to comply with Generally Accepted Accounting Principles (GAAP). There are numerous differences that exist between accounting for income taxes and GAAP.
Examples of items that create differences between taxable income and net income (GAAP) are:
- Accelerated depreciation for income taxes, particularly using bonus depreciation, Section 179, or Modified Accelerated Cost Recovery Systems (MACRS). Straight-Line depreciation is generally used for GAAP.
- Penalties or fines (not tax deductible; expensed via GAAP)
- Political Contributions (not tax deductible; expensed via GAAP)
- Interest on state or municipal bonds (Exempt from Federal income tax; included in income calculation for GAAP)
- Amortization of Goodwill (deductible for taxable income; annual impairment testing done for GAAP (assuming the election out of goodwill impairment testing for private companies has NOT been made))
- Life insurance premiums paid on behalf of an officer or employee when the company is the direct or indirect beneficiary under the policy (not tax deductible; capitalized and expensed via GAAP)
Depending on your company’s reporting requirements and operations, maintaining two sets of books may be appropriate.
For more information on this, please contact Tony Mueller, CPA at firstname.lastname@example.org.