The Comprehensive Guide on How to Read a Financial Report: Wringing Vital Signs Out of the Numbers, + Website

CHAPTER 12

INCOME TAX EXPENSE—A LIABILITY AND ASSET?

Why the Income Tax Connection Can Be Very Confusing

We’ve all heard it, time and time again, to everyone’s (or at least most everyone’s) amazement and frustration: How do some of the world’s largest and most profitable companies pay little or no income tax in the United States?

Although the purpose of this chapter is not to focus on explaining and educating the reader on just how some of the largest U.S. corporations minimize income tax liabilities to basically zero (while reporting record profits) the goal of the chapter is to delve into the relatively complex subject matter of income tax expense and how it can impact different sections of the balance sheet, including both assets and liabilities, current or long term. It’s really quite rare that one income statement expense account has the ability to impact so many sections of the balance sheet but then again, this should come as no surprise given the complexity of the Internal Revenue Code.

But before we dive into the muck and really get our hands dirty, a somewhat expanded understanding of taxes (not just income) is worth covering to put you in the proper frame of mind (or should I say, frustrated state of mind) and gain a little more insight on just how burdensome and complex tax compliance can be.

Tips, Tidbits, and Traps

Over the past 10 years, the following acronym has ...