What does tax basis mean on the CPA exam?
Tax basis. What an asset or liability is worth for tax purposes, which is often not what it is worth for accounting. The gap between the two is what creates a deferred tax asset or liability.
Defined against ASC 740-10-25.
Which CPA exam sections use tax basis?
Tax basis appears in the FAR section of the CPA exam.
Other terms defined against ASC 740-10
- deferred tax asset: A future tax saving created when an item is deducted for accounting before it is deducted for tax, or when a loss can be carried forward.
- deferred tax liability: The deferred tax consequences of taxable temporary differences: income already in the books that the return has not taxed yet, or a deduction taken on the return ahead of the books.
- temporary difference: A difference between the tax basis of an asset or liability and its reported amount that will produce taxable or deductible amounts in future years.
- valuation allowance: The contra account reducing a deferred tax asset to the portion more likely than not to be realized, meaning a likelihood above 50%.
Related terms
- inside basis: The partnership's own tax basis in the assets it holds.
- outside basis: A partner's tax basis in the partnership interest itself.
- adjusted basis: What the taxpayer has invested in property for tax purposes: cost, plus improvements, less depreciation taken.
- contractual basis: A special-purpose framework built from the terms of a contract, used when two parties agree how the numbers will be prepared for their own purposes.
- stock basis: A shareholder's investment in S corporation stock for tax purposes.
- carryover basis: Basis that follows the property from the previous owner instead of resetting to what was paid.