Current income tax relates to tax calculated on the current period’s taxable income. Deferred income tax reflects the future tax consequences of differences between financial accounting and tax reporting, as well as certain tax carryforwards.
The following explanation focuses on U.S. GAAP under ASC 740.
What Is Current Income Tax?
Current income tax is the amount payable or refundable based on taxable income, tax credits, and other applicable tax rules for the period.
Current tax expense is not necessarily the same as cash taxes paid during the year. Estimated payments and settlements of prior-year taxes can cause payment timing to differ from expense recognition. Reference: FASB, Income Taxes — Topic 740 disclosure examples
What Is Deferred Income Tax?
Deferred income tax reflects future tax effects arising from differences between the financial statement carrying amounts and tax bases of assets and liabilities, along with certain carryforwards.
For example, faster depreciation for tax purposes may reduce current taxable income but leave fewer tax deductions available later, creating a deferred tax liability. Future tax benefits may instead create deferred tax assets, subject to applicable requirements. Reference: Income tax accounting policy example filed with the SEC
Deferred tax accounting does not grant an extension to pay taxes. It records future tax effects in the financial statements.
A Simple Example
Assume:
- Pretax accounting income: $100,000
- Tax depreciation exceeding book depreciation: $20,000
- Taxable income: $80,000
- Hypothetical tax rate: 25%
Current tax expense is $20,000 ($80,000 × 25%).
The depreciation difference creates a $5,000 deferred tax liability. Assuming no opening balance and that the full amount is recognized in current-period earnings:
| Component | Amount |
|---|---|
| Current tax expense | $20,000 |
| Deferred tax expense | $5,000 |
| Total income tax expense | $25,000 |
The 25% rate is illustrative, not an actual U.S. tax rate. This example assumes a constant rate and excludes state taxes, credits, permanent differences, and other adjustments.
What Should a Company Review at Year-End?
Key considerations include temporary differences, reversal timing, loss and credit carryforwards, utilization limits, and enacted tax laws and rates.
Companies must also assess deferred tax asset realizability. Under U.S. GAAP, a valuation allowance is required for the portion that is more likely than not to remain unrealized. Reference: ASC 740 accounting policy example filed with the SEC
How We Can Help
Threefold Hara CPA assists with current and deferred tax calculations, temporary difference schedules, and valuation allowance assessments, while coordinating tax returns and financial reporting.
This article provides general information. Accounting treatment depends on applicable standards, tax laws, and company-specific circumstances.
Information reviewed: October 15, 2026
