Handbooks | June 2023
Our in-depth guide explains the accounting for various forms of tax credits in accordance with US GAAP.
The accounting for tax credits can be quite different depending on their nature and characteristics, as well as an array of policy choices that are applied in practice. What you might find is that the tax credits can take a straight or circuitous path to the income tax line, and some don’t end up there at all.
This Handbook covers the accounting for tax credits generated indirectly through ownership of interests in pass-through entities and is prepared on the basis of the guidance in ASC 323-740, as amended by ASU 2023-02, Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. Our in-depth guide on the accounting for income taxes provides guidance applicable before the adoption of the ASU.
Public business entities | All other entities | |
Annual and interim periods – Fiscal years beginning after | December 15, 2023 | December 15, 2024 |
Early adoption permitted? | Yes | Yes |
While tax credits are typically claimed on the income tax return, there is diversity in how they are accounted for in the financial statements. This diversity arises from a number of factors, including:
Adding to this diversity are the policy choices in US GAAP, as well as those practices that have developed over time as entities try to apply the limited guidance available.
As if there were not enough sources of diversity when it comes to accounting for tax credits, recent legislation gave rise to new sources by introducing mechanisms to monetize some tax credits that are novel to US federal tax law – including elections for direct pay and third-party transfer.
Signs point to tax credits continuing to be an important instrument to control tax costs and/or support social responsibility initiatives. So, all of these sources of diversity aren’t going anywhere any time soon.
Tax Credits
Download PDFIRA and CHIPS: Tax considerations
Our impressions on the accounting for key provisions in the recently enacted tax legislation.
Simplified investor accounting for tax equity investments
FASB issues final ASU that expands use of the proportional amortization method to additional tax equity investments.
Handbook: Accounting for income taxes
Latest edition: KPMG explains the accounting for income taxes in detail, providing examples and analysis.
Receive the latest financial reporting and accounting updates with our newsletters and more delivered to your inbox.
Access our accounting research website for additional resources for your financial reporting needs.