Income Tax Expense
The total tax charge recognized on a company's income statement, including both taxes currently due and deferred tax effects.
What is Income Tax Expense?
Income tax expense is the total tax charge reported on a company's income statement for the period, comprising two components: current tax expense (taxes actually owed to tax authorities based on taxable income) and deferred tax expense or benefit (arising from temporary differences between accounting income and taxable income). Because GAAP accounting rules differ from tax rules in areas such as depreciation methods and revenue recognition timing, a company's book income often differs from its taxable income. These differences create deferred tax assets (future tax benefits) or deferred tax liabilities (future tax payments) on the balance sheet. Income tax expense divided by pre-tax income gives the effective tax rate, which often differs from the statutory corporate tax rate.
Example
A company reports $1 billion in pre-tax income on its income statement. Its current tax expense — based on taxable income of $900 million (lower due to accelerated depreciation for tax purposes) at a 21% statutory rate — is $189 million. However, the accelerated depreciation creates a $21 million deferred tax liability. Total income tax expense on the income statement is $210 million, resulting in an effective tax rate of 21%, matching the statutory rate in this simplified example.
Source: FASB — ASC 740: Income Taxes