Income Tax Definition and Explanation

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Quick Definition

The amount of total taxes the company owes from income generated.

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Explanation of Income Tax

Income Tax is listed on the Income Statement, and is simply the amount of taxes owed by the company from the income they generated. Sometimes, the company is able to defer payment of some or all of its Income Taxes, which they explain in the accompanying notes to the financial statements.

Importance of Income Tax

The Income Tax value is most often used to calculate the Tax Rate by dividing the Income Taxes by the Earnings Before Income Taxes. Companies are highly motivated to reduce their tax payments. Be sure the Income Tax amount is appropriate for this company being analyzed. If the value appears low, they may be deferring part of their tax payment.