Converting Book Tax to Cash Tax

Does anyone know how to convert book tax to cash tax using the financial statements? Would it be as follows:
Cash Tax = Book Tax + Inc in DTL - Inc in DTA
e.g. if you paid 500mm in book tax on your income statement, and your DTL increases by, say, 10mm from last year and your DTA increases by, say, 20mm, your Cash Tax would be equal to: 500 + 10 - 20 = 490

How To Calculate Cash Taxes

User @amufb1 offered the best response to this query:

If you wanted to get more in depth you would also take into effect the excess tax benefit of equity compensation, usually related to stock options, and the impact of the current taxes.
So taking your example again if we had;
(In Millions)
(500) - Total Tax Provision Per Income Statement (20) - Deferred Tax Asset Increase 10 - Deferred Tax Liability Decrease 25 - Current Tax Provision - ( This Includes both current and long term accrued taxes on income) 15 - Excess tax benefit from stock-based compensation ( found under a company's financing activities in a statement of CF)
So to convert from book tax to cash - you would sum all of the follow to go from $500mm in book tax to $470mm cash tax. Kind of top-level let me know if you want more elaborate detail but figured this should be enough to convert from book to cash taxes.

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Comments (4)

Best Response
Apr 26, 2013

Pretty much nailed it on the head, if you wanted to get more in depth you would also take into effect the excess tax benefit of equity compensation, usually related to stock options, and the impact of the current taxes.

So taking your example again if we had;

(In Millions)

(500) - Total Tax Provision Per Income Statement
(20) - Deferred Tax Asset Increase
10 - Deferred Tax Liability Decrease
25 - Current Tax Provision - ( This Includes both current and long term accrued taxes on income)
15 - Excess tax benefit from stock-based compensation ( found under a companies financing activies in statement of CF)

So to convert from book tax to cash - you would sum all of the follow to go from $500mm in book tax to $470mm cash tax. Kind of top level let me know if you want more elaborate detail,l but figured this should be enough to convert from book to cash taxes.

"Do you like Huey Lewis and the News?"

    • 2
Apr 26, 2013

Don't forget valuation allowances associated with DTAs, as these will increase book taxes but have no effect on cash taxes. You may be already including it with your equation if your Incr in DTAs is net of valuation allowances, but you want to make sure to explicitly include these.

Apr 26, 2013
Boothorbust:

Don't forget valuation allowances associated with DTAs, as these will increase book taxes but have no effect on cash taxes. You may be already including it with your equation if your Incr in DTAs is net of valuation allowances, but you want to make sure to explicitly include these.

+1 on the valuation allowances, these are usually taken into account to arrive at your Gross Deferred taxes which are then tax affected to arrive at the DTA or DTL that are booked on the balance sheet. Usually the DTA/DTL are net of valuation allowances if taken from the company's BS.

"Do you like Huey Lewis and the News?"

Apr 26, 2013
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