Tax basis is a supported tax-law amount used to determine future taxable or deductible consequences. It can differ from book carrying amount because recognition, measurement, depreciation, deduction, or settlement rules differ. Never copy the book ledger into the tax-basis column to make the schedule balance.
Establish basis before direction
ASC 740-10-05-7 connects an asset or liability's tax basis and reported financial-statement amount to the temporary-difference analysis, while recognizing that tax-position accounting can affect basis.
Suppose equipment has a $700,000 book amount and a supported $400,000 tax basis. The $300,000 difference is analyzed through future recovery; the direction cannot be established from the account title alone. For a liability, settlement may create a deduction even when tax basis is described differently under the applicable law. Retain the source, date, jurisdiction, unit of account, and owner. This page records supported tax basis; it does not interpret tax statutes or prepare a return.
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- Establish and document the tax basis separately from the book carrying amount before determining a future taxable or deductible amount.
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Related concepts
- Book-tax difference
- Deductible temporary difference
- Outside-basis difference and indefinite-reinvestment boundary