Tax profit
Encyclopedia
Tax profit or taxable profit is used to distinguish between accounting profit or earnings
(the number that is generally referred to in financial results for public companies and quoted in the press). Taxable profit is the number that is used to calculate tax on income.
For a number of reasons, taxable profit may differ from reported earnings, and may be higher or lower.
Company financial reports often distinguish between profit before tax and after-tax profit.
Example
Depending on the reason for the differences between profit before tax and taxable profit, the company may show a deferred tax or tax asset to account for future taxes. Depending on the circumstances and accounting standards, taxes paid in cash and taxes shown on the profit and loss statement may also differ.
Taxable profit is rarely shown in the published financial statements
. Due to the differences between nominal tax rates and actual taxes paid, analysts sometimes refer to the effective tax rate, which is (actual) taxes divided by profit before tax. In the example above, the effective tax rate would be 10%.
Earnings
Earnings are the net benefits of a Corporation's operation. Earnings is also the amount on which corporate tax is due. For an analysis of specific aspects of corporate operations several more specific terms are used as EBIT -- earnings before interest and taxes, EBITDA - earnings before...
(the number that is generally referred to in financial results for public companies and quoted in the press). Taxable profit is the number that is used to calculate tax on income.
For a number of reasons, taxable profit may differ from reported earnings, and may be higher or lower.
Company financial reports often distinguish between profit before tax and after-tax profit.
Example
- A company has accounting profit before tax of $100, but due to the use of accelerated depreciationAccelerated depreciationAccelerated depreciation refers to any one of several methods by which a company, for 'financial accounting' or tax purposes, depreciates a fixed asset in such a way that the amount of depreciation taken each year is higher during the earlier years of an asset’s life...
, has a taxable profit of $50. The company pays profit tax at a rate of 20%.
- In this simple example, the company would report the following:
- Profit before tax: $100
- Taxable profit: $50
- Taxes: $10
- After-tax profit: $90
Depending on the reason for the differences between profit before tax and taxable profit, the company may show a deferred tax or tax asset to account for future taxes. Depending on the circumstances and accounting standards, taxes paid in cash and taxes shown on the profit and loss statement may also differ.
Taxable profit is rarely shown in the published financial statements
Financial statements
A financial statement is a formal record of the financial activities of a business, person, or other entity. In British English—including United Kingdom company law—a financial statement is often referred to as an account, although the term financial statement is also used, particularly by...
. Due to the differences between nominal tax rates and actual taxes paid, analysts sometimes refer to the effective tax rate, which is (actual) taxes divided by profit before tax. In the example above, the effective tax rate would be 10%.
Statutory terminology
Terminology for taxable profit varies by jurisdiction, for example- Taxable incomeTaxable incomeTaxable income refers to the base upon which an income tax system imposes tax. Generally, it includes some or all items of income and is reduced by expenses and other deductions. The amounts included as income, expenses, and other deductions vary by country or system. Many systems provide that...
in the United States - Profits chargeable to corporation tax, or PCTCTPCTCTIn the UK tax system, more specifically, for UK corporation tax, PCTCT stands for "profits chargeable to corporation tax," a UK term for taxable profits...
, in the UK corporate tax system