Essay: Affect of Tax Rates on Deferred Taxes

Sample Essay

The change in tax rates affect the measurement of deferred taxes as the change in tax rates have to be revealed in the readjustment of deferred tax assets and liabilities. The change in tax rates have to be implemented immediately after the enactment of law regarding tax rates regardless of the official enforcement of law. The deferred tax assets and liabilities increase or decrease due to this change in the tax rates. If a company reports deferred tax assets on its statements the increase in tax rates would decrease the income tax expense whereas if the company has deferred tax liabilities the increase in tax rates would increase the income tax expense of the company (White, Sondhi, & Fried, 2002).

Income Taxes with Multiple Temporary Differences

Usually there are more temporary differences in large organizations and the income tax expense amounts are calculated with the existence of these multiple differences in mind. When multiple temporary differences exist in a company the income tax expense is calculated based on the nature of these differences. The differences which result in future taxable amounts are grouped together and the same is applied on differences which result in future tax deductible amounts. The net of tax deductible amounts are multiplied with the tax rate to arrive at the total amount of deferred tax assets while the taxable amounts are multiplied with the tax rate to calculate deferred tax liabilities.

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