The tax laws may not recognise some of the expenses that a company has charged off in its accounts.

In these cases, a company ends up postponing part of its tax liability on this year's profits to future years. If you have questions or comments please contact Morningstar. The essential ideas of accounting for the income taxes captured by the worksheet are described below.

This is because, in the current year, its profits for tax purposes would be lower than the profits computed for accounting purposes. Or it may use a different method of charging depreciation. Tax laws may allow a company to deduct certain expenses in full in a single year, but it may phase out the charge over a number of years. Under the old system of accounting only for current taxes, the company's profits would be artificially high in the first year due to the tax savings. The profits would, however, be lower in the subsequent years, as the tax laws in the subsequent years would not recognise the depreciation charge or the amortised expense, as the case may be.