Permanent and temporary differences The schedule M1 and M2 aim at reconciling the book and tax difference. Those differences generate permanent and temporary difference. We can note that the difference of an amount that causes a permanent difference has no...
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Permanent and temporary differences The schedule M1 and M2 aim at reconciling the book and tax difference. Those differences generate permanent and temporary difference. We can note that the difference of an amount that causes a permanent difference has no effect on income tax payable, deferred taxes or income expense. Therefore, permanent differences do not create future taxable amounts and futures deductible amounts and therefore have no tax consequences. In the other hand, temporary differences create deferred tax liability or deferred tax asset for future taxable amounts or future deductible amounts resulting from transaction that have already occurred. Permanent differences Meal and entertainment create a permanent difference because the amount will not change in the futures years. And the meal and entertainment expenses will be fully deductible for book purpose but only 50% of the amount which is considered by the Internal revenue code as ordinary and necessary business expense
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