Permanent differences are differences that cause taxable income and pretax financial income to differ. Permanent differences are either when the income enters pre-tax financial income but is not included in taxable income, or it is only taken into consideration when calculating taxable income and not the calculation of pre-tax financial income. These differences are the opposite of temporary differences.
An example of a permanent difference is the interest collected on state and municipal bonds. They are only included in the income on the financial statements, however since they are not taxable they are not included in taxable income.
Example:
Adequate Disclosure has the following information for its tax return and financial statement preparation.
