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Permanent and temporary differences

The schedule M1 and M2 aim at reconciling the book and tax difference. Those differences generate permanent and temporary difference.

We can note that the difference of an amount that causes a permanent difference has no effect on income tax payable, deferred taxes or income
expense. Therefore, permanent differences do not create future taxable amounts and futures deductible amounts and therefore have no tax
consequences.

In the other hand, temporary differences create deferred tax liability or deferred tax asset for future taxable amounts or future deductible
amounts resulting from transaction that have already occurred.

Permanent differences

Meal and entertainment create a permanent difference because the amount will not change in the futures years. And the meal and
entertainment expenses will be fully deductible for book purpose but only 50% of the amount which is considered by the Internal
revenue code as ordinary and necessary business expenses is deductible for tax purpose
Life insurance premium paid on key employees generate an permanent difference
Federal income tax per book
Depreciation

Temporary differences

Excess of capital loss over capital gain create a temporary difference it will be reversed in the futures years when to the company has
capital gain that offset the current capital loss.

The $6000 which represent the extra fee pay to have a suite in the stadium are not considered as ordinary and necessary business
expenses as defined in
-section162(a)(2)
traveling expenses (including amounts expended for meals and lodging other than amounts which are lavish or extravagant under
the circumstances) while away from home in the pursuit of a trade or business- because the amount is extravagant.
A539 Corporate Tax Return
Problem 1-33: The Bike Shop

Prepared by:
Wassim Zhani, Jacques Djousop, Kaleb Lantrip, Nurain Yusuf