Book Income vs. Taxable Income
Understanding the Difference
Book income is income calculated under U.S. GAAP for financial reporting purposes. Taxable income is computed according to tax laws. Because these calculations often differ, companies may pay taxes that are higher or lower than the income tax expense reported in their financial statements.
Tip
Do not confuse income tax expense with taxes currently payable—they are often different because of deferred taxes.
Summary
Book income and taxable income differ because financial reporting and tax laws recognize certain items differently.