For example, the collection of fees in advance will be recorded in GAAP when it earned while according to tax accounting it will be considered as rent taxable income automatically. Another example is the recording of depreciation of fixed assets. Under the GAAP it asset will depreciated using different methods such as straight-line while under the tax accounting only one method is allowed known as MACRS. Under both the depreciation methods, the effect is on the net income. The difference resulting from both the accounting methods may cause differed tax assets or liabilities which can be transferred from one accounting period to the other depending on the financial situation of the company. Another difference between GAAP and tax accounting is the recognition of other revenues or items. For example, the revenue earned from municipal bonds is recognized as interest earned in GAAP whereas such revenues are exempt from federal taxes accounting.
The filing status depends on an individual’s marital status and his/her family situation. There are five possible filing statuses. These are married filing jointly, surviving spouse, head of household, single, and married filing separately. Although there are five filing statuses, only four rate schedules or tax tables are used because surviving spouse and married filing jointly usually use the same rate. The characteristics that distinguish each of the filing statuses are based on four factors which also determine how much tax rate is applied to each of them. These factors are maintenance of household, having any dependents, marital status, and citizenship.
The characteristic of a surviving spouse is that he/she has to maintain a household, have dependents such as a daughter or a son, the marital status remains the same for atleast two years and is a citizen. The tax rate is that same as that of