Summary: Under ASC 842, the tax temporary difference is the difference between the total lease liability and the right-of-use asset.
For most companies, the new lease accounting standard has made GAAP accounting complicated. If they are not using UGAAP Lease Accounting software, the implementation effort are likely to be exhausting for everyone involved. Now, when it comes to the point of tax accounting for the leases, another massive headache seems to be in order.
Actually there is a quick way out for tax accounting under the new lease accounting standard.
The premise is to have a tool to quickly generate a GAAP balance report, such as this one using UGAAP Lease Accounting software:
Once you have this report in Excel, the tax temporary difference is the difference between total lease liability and right-of-use asset. Subject the temporary difference to the effective tax rate, you have your deferred tax asset or liability ready to book. You can probably do this in 5 minutes.
For example, the first lease of German branch has a temporary difference of $852,763 ($22,038,692 lease liability - $21,185,929 right-of-use asset). If the effective tax rate is 29%, the deferred tax asset balance would be $247,301 ($852,763 X 29%) at the end of the month.
This method applies to both operating leases and finance leases, with or without adjustment to right-of-use asset. The method can be easily proven using amortization schedules. Don't have a quick way to generate amortization table? Send UGAAP a message at firstname.lastname@example.org. Our tool is easy to use and reasonably priced.