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Sharpe CPA  /  Footnotes  /  Income tax footnote

The income tax note, under ASC 740.

Current and deferred expense, the rate reconciliation, the deferred tax assets and liabilities, carryforwards, uncertain tax positions and income taxes paid — laid out the way ASC 740-10-50 asks for them since ASU 2023-09, for a C corporation or for an entity that passes its income through to its owners. Free, and it runs in your browser.

Use at your own risk. This free tool is provided as is, without warranty, and is not accounting, legal or tax advice. All of the work a CPA performs is subject to that person’s or firm’s judgment. Do your own research and verify that the checklist or protocol you are using is valid and up to date. Built from public sources — see the sources and the terms of use.

The entity

Taxes on the entity itself

For an LLC in California, the annual tax and the gross-receipts fee are not income taxes.

Income and tax expense

Whole dollars. ASU 2023-09 requires income before taxes split between domestic and foreign, and tax expense between federal, state and foreign, for every entity.

Income before taxesCurrent yearPrior year
Income tax expenseCurrent yearPrior year

Rate reconciliation — public business entity

The tax effect of each category, in dollars (an increase in tax is positive). Tax at the statutory rate is computed; anything left over becomes “Other adjustments”, which must itself be broken down if it reaches 5% of the statutory amount.

CategoryCurrent yearPrior year

Rate reconciliation — other entities

No table is required: describe the categories of reconciling items, and any jurisdiction, that make the effective rate differ significantly from the statutory rate (ASC 740-10-50-13).

Deferred taxes

The tax effect of each temporary difference and carryforward, as positive amounts. A public business entity shows the tax effect of each significant type; others may give the types alone (ASC 740-10-50-6, 50-8).

Deferred tax assetsCurrent yearPrior year
Valuation allowanceCurrent yearPrior year
Deferred tax liabilitiesCurrent yearPrior year

Carryforwards and legislation

Uncertain tax positions and open years

Unrecognized tax benefitsCurrent yearPrior year

Income taxes paid

Net of refunds. Any state that is 5% or more of the total paid is shown on its own line; the rest are combined (ASC 740-10-50-22, 50-23).

Paid, net of refundsCurrent yearPrior year

ASC 740-10-50 checklist

    The standard

    ASC 740, as amended by ASU 2023-09.

    ASU 2023-09 rewrote the income tax disclosures: a reconciliation built from set categories, income taxes paid by jurisdiction, and pretax income and tax expense split by where they arise. It is effective for public business entities for annual periods beginning after December 15, 2024, and for all other entities a year later — annual periods beginning after December 15, 2025. It is applied prospectively; retrospective application is permitted.

    What the note has to contain

    • 740-10-50-2 — total deferred tax liabilities, total deferred tax assets, the valuation allowance and its net change.
    • 740-10-50-3 — operating loss and tax credit carryforwards: amounts and expiration dates.
    • 740-10-50-6 and 50-8 — the significant temporary differences and carryforwards; a public business entity gives the tax effect of each, others may give the types alone.
    • 740-10-50-9 to 50-10B — current and deferred expense; pretax income, domestic and foreign; expense, federal, state and foreign.
    • 740-10-50-15 and 50-15A — uncertain tax positions: the interest and penalty policy, open tax years, and (public business entities) the tabular rollforward.
    • 740-10-50-22 and 50-23 — income taxes paid, net of refunds, by federal, state and foreign, and by any jurisdiction at 5% or more of the total.

    The rate reconciliation

    • Public business entities (740-10-50-12A) — a table in dollars and percentages, in eight categories: state and local taxes net of federal effect; foreign tax effects; changes in tax laws or rates enacted in the period; cross-border tax laws; tax credits; changes in valuation allowances; nontaxable or nondeductible items; changes in unrecognized tax benefits.
    • Items at 5% or more of pretax income times the statutory rate are shown separately, by nature and, for foreign effects, by jurisdiction.
    • Other entities (740-10-50-13) — a description of the nature and effect of the categories of reconciling items, and of any jurisdiction, that make the rate differ significantly from the statutory rate. No numbers are required.

    Recognition points behind the note

    • 740-10-25-47 — the effect of a change in tax law is recognized at the enactment date. The 2025 legislation was enacted July 4, 2025: full expensing of property acquired after January 19, 2025, current deduction of domestic research costs, and a revised interest limitation.
    • 740-10-30-5 — a valuation allowance when it is more likely than not that some or all of a deferred tax asset will not be realized.
    • 740-10-30-7 — an uncertain position is measured at the largest amount more than 50% likely to be realized.
    • 740-10-45-4 and 45-6 — deferred taxes are noncurrent, and offset only within a tax-paying component and jurisdiction.

    Entities not taxed on their income

    • 740-10-50-16 — an S corporation, partnership or LLC discloses that it is not subject to income tax; a public business entity also discloses the net difference between the tax bases and the reported amounts of its assets and liabilities.
    • State taxes imposed on the entity itself — a franchise tax on an S corporation’s income — are income taxes; a fee based on gross receipts is not.
    • Uncertain tax positions still apply: the entity’s status as a pass-through is itself a tax position, and the open years are disclosed.
    • Pass-through entity elective taxes: disclose the policy chosen and the amount paid.

    This lays the note out from your provision workpapers; it does not compute the provision. Check the references against the current Codification text before relying on them, and the CPA who signs the report owns every word.