Income tax expense reported on the income statement is $45,000 for 20X0, and the tax return for 20X0 (the ﬁrst year) shows an income tax liability of $42,000 because of a deduction that cannot be taken until 20X1. The future income tax amount on the statement of ﬁnancial position at the end of 20X0 will be which of the following?

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The future income tax amount will be a credit of $3,000, reflecting the temporary difference between the income tax expense reported on the income statement ($45,000) and the income tax liability on the tax return ($42,000). This difference will reverse in the future when the deduction is taken, hence it is recorded as a deferred tax asset or liability, in this case, a liability (credit) because the expense on the income statement is higher than the tax paid.

Income Tax Expense Reported on the Income Statement Is $45,000