I’ve been going through the CFA finacial reporting textbook and have gotten very interested in taxation. I have a few questions.
On p. 496 of the textbook (2015 edition), what is the difference between the current income tax (provision)/benefit and the deffered income tax (provision)/benefit. I thought deferral was a concept related to your balance sheet (i.e., DTLs and DTAs), but here the income tax provision (an income statement item) is being split being current and deferred taxes. The only interpretation I can think of is that current taxes refer to actual cash taxes, whereas deferred taxes are only for book purposes, but will actually be paid later from a tax accounting perspective. Basically I’m asking what the top of exhibit 4 is all about.
Also, on p. 68 (p. 72 PDF) of the 2006 Micron Technologies 10-K (document used for the example referred to above), what determines the portion of the tax asset valuation allowance that is charged/(credit) to costs and expenses, as opposed to the portion that’s attributable to deductions and write-offs. I’m asking this to understand why the change in valuation allowance in exhibit 4 on p. 496 of the textbook does not tie with the change valuation allowance implied on p. 497 (“less valuation allowance” row). -1,029 -(-915) = 114 (amount mentioned in the text at the bottom of p. 497) =/= 103 (amount I referred to on p. 496).
Lastly, if you’re trying to model a company’s taxes on a book/cash basis, how would you go about doing this (to gauge what a company’s tax provision and cash taxes will be next quarter)? I feel like the part exhibit 4 where they start from the US federal tax (provision)/benefit at the statutory rate is the best way to go about this. Basically, let’s say you’re building a DCF and want to model what a company’s taxes will be, how do you go about doing this?
Thank you very much. I’ve spent something like 10 hours trying to find these answers. I am aware that some of this is beyond the scope of the CFA. I am just asking out of personal curiosity; please let me know if this belongs on another section of the forum.