Deferred Tax Credits Are Liabilities.

Abstract A corporation's taxable income is seldom the same as its reported income before taxes. The calculation of taxable income is only a step in the calculation of a tax assessment and the assessment of taxes involves political, economic, and administrative considerations, which are not relevant to the calculation of income in accordance with generally accepted accounting principles. The differences that occur in any one-year can be divided into two categories, those that are permanent and those that arise from attributing revenues and expenses to some years for taxation purposes and to other years for accounting purposes, and that balance out over the entire lifetime of a business. Income is measured in accounting by first determining what the revenues for the year are and then charging against those revenues the expenses that were incurred in earning them. An economist could argue that the corporation is concerned income taxes are less of an expense than dividends, that both interest and dividends represent costs of obtaining funds with which to operate while income taxes represent a distribution of the residual profit left in the hands of the corporation, the corporation being an individual separate and distinct from its stockholders under the law.