The formulas
- Supported DTA = min(gross DTA, sum of sources x rate)
- Valuation allowance = gross DTA - supported DTA
How it works
ASC 740-10-30-18 lists four sources of taxable income that may be available to realize a deferred tax asset: future reversals of existing taxable temporary differences, future taxable income exclusive of reversing differences and carryforwards, taxable income in prior carryback years, and tax-planning strategies. The tool turns the amounts you support into the allowance arithmetic.
Reversals count only when they occur in periods that let the deductions be used, before carryforwards expire. Weighing positive and negative evidence, including cumulative losses in recent years, decides which amounts go into each field.
Illustrative figures only. Check the result against your firm's methodology before relying on it.
Common questions
Do indefinite-lived DTLs count as a source?
Only against deferred tax assets that will also be indefinite or that can be offset under the tax law, such as losses with no expiration.
What qualifies as a tax-planning strategy?
An action that is prudent and feasible, that the entity would take to prevent a carryforward from expiring, and that would realize the deferred tax asset.
Is a recent cumulative loss decisive?
ASC 740-10-30-23 calls cumulative losses in recent years a significant piece of negative evidence that is difficult to overcome. Projections of future income get less weight against it.
Sources
Runs in your browser. The figures you type are not sent to CORAA or stored. Check the result against your firm's methodology before relying on it.