Tax Provision
The estimated income tax expense recorded on a company's income statement for the reporting period.
What is Tax Provision?
A tax provision is the estimated amount of income taxes that a company expects to pay or recover for the current reporting period, recorded as income tax expense on the income statement. It consists of two components: current tax expense (taxes owed to taxing authorities based on taxable income) and deferred tax expense (the change in deferred tax assets and liabilities arising from temporary differences between book and tax accounting). The total tax provision is calculated under the ASC 740 (Income Taxes) framework and reconciled in the effective tax rate footnote of the annual report, showing how the statutory rate differs from the actual rate due to permanent items and credits.
Example
In FY2024, Microsoft reported a total income tax provision of approximately $10.4 billion, comprising current income taxes and deferred tax adjustments. Dividing by pre-tax income of $109.4 billion yields an effective tax rate of about 9.5% — well below the 21% U.S. statutory corporate rate, primarily due to foreign-derived intangible income (FDII) deductions and R&D tax credits.