Are deferred taxes provided for accumulated temporary differences by the Gokhale Method?

According to the 2024 Gokhale Method Franchise Disclosure Document, Gokhale Method accounts for income taxes using the asset and liability approach as outlined in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 740. This approach requires deferred taxes to be provided for accumulated temporary differences arising from basis differences for assets and liabilities when reporting financials versus income taxes.

However, for the year ending December 31, 2023, Gokhale Method states that there were no temporary differences that resulted in deferred tax assets or liabilities. This means that for that particular year, the book value and tax basis of the company's assets and liabilities were the same, and therefore no deferred taxes were recorded.

Furthermore, the FDD states that Gokhale Method has elected to be taxed under Subchapter S of the Internal Revenue Code. Under these provisions, the net income or loss is allocated to the respective stockholders and included on their individual tax returns. Therefore, generally no provision or liability for federal income taxes is included in the company's financial statements. The California annual tax for S corporations is the greater of 1.5% of the corporation's net income or $800, which is reflected in the current year expense as incurred. GMI files a consolidated tax return with Gokhale Method Enterprise, Inc.

Prospective franchisees should note that while Gokhale Method follows standard accounting practices for deferred taxes, the absence of temporary differences in 2023 and the S corporation tax structure impact how income taxes are reported at the company level. Franchisees may want to consult with a financial advisor to understand the tax implications at an individual level.