Finance

Step by step to calculate the deferred tax

The deferred tax is a bridge between the accounting and the declaration of an entity’s income tax.

Find out in this editorial how it is calculated, who is obliged to incorporate it, how it is recognized, what is temporary, and permanent differences, and much more.

What is deferred tax?

Deferred tax makes it possible to reflect the future tax consequences of current economic events in the financial statements.

In other words, deferred tax is the bridge between an entity’s accounting and income tax return.

income tax

The deferred tax is part of the income tax of the entity. This is because it expressly requires entities to recognize in their financial statements the current and future consequences of the transactions carried out in the period.

current tax

The current tax is the one that is settled and paid on the transactions that are included in the financial statements of the period or on transactions of previous periods, carried out during the fiscal year, under the tax regulations.

deferred tax

Deferred tax estimates the tax that an entity must pay or stop paying in the future. Some income and expenses are not taxed or deductible in the period they are recognized in the financial statements but in the following periods.

Even if an entity does not include an income or expense in the income statement for the period in which it prepares its financial reports. It must recognize the tax generated on them since, in the declarations of the following periods, it must declare said income or allocate the deduction, as the case may be.

Differences between current tax and deferred tax

The following graph shows the differences between current and deferred tax:

In the following video, you will be able to listen first-hand to Dr. Juan Fernando Mejía, expert consultant of International Financial Reporting Standards, who explains the difference between deferred tax and current tax and what is the accounting treatment of these taxes:

How is the deferred tax generated?

As we indicated, the deferred tax is generated because some income and expenses are not taxed or deductible in the period in which the financial statements are prepared, so the entity cannot include them in the income statement for that period.

This occurs because the tax regulations do not accept accounting estimates until they are made.

This causes differences to be generated between the accounting and tax bases of assets and liabilities. Which will be reversed in the future when the income is taxed, or it is possible to allocate the deduction.

Deferred tax for presumptive income

The tax paid on presumptive income corresponds to a tax credit. That the entity can compensate with the ordinary liquid income. Determined in the following five (5) years (see a paragraph of article 189 of the ET).

Therefore, a deferred tax asset must be recognized. It represents the right of an entity to offset excess presumptive income over ordinary income in future periods.

How is deferred tax calculated?

There are different methods to calculate the deferred tax and identify its nature. In the following lines, we delve into them.

balance sheet method

As we indicated on previous pages, tax regulations do not accept accounting estimates. Such as the fair value or impairment of assets, until they are made.

This causes differences to be generated between the accounting and tax bases of assets and liabilities. Which will be reversed in the future when the income is taxed, or it is possible to allocate the deduction.

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