What accounting differences cause the deferred tax asset and liability for Itan?
Itan Franchise · 2025 FDDAnswer from 2025 FDD Document
-year ADA. For the years ended December 31, 2024 and 2023, there was an allocation of $11,500 and $0, respectively, towards revenue classified as Area Development Agreement fees on the statements of earnings. As of December 31, 2024 and 2023, contract liabilities is $103,500 and $115,000 .
NOTE 9 INCOME TAXES
Income tax expense is calculated as follows:
| 2024 | 10 | 2023 | ||
|---|---|---|---|---|
| Current taxes: | ||||
| Federal | $ | - | $ | 64,194 |
| State | 6,013 6,013 | 32,905 97,099 | ||
| Deferred taxes: | ||||
| Federal | 5,153 |
Source: Item 23 — RECEIPT (FDD pages 44–190)
What This Means (2025 FDD)
According to Itan's 2025 Franchise Disclosure Document, the deferred tax asset and liability are due to specific accounting differences. The tax return is prepared on a cash basis, while the financial statements are prepared using Generally Accepted Accounting Principles (GAAP). This difference in accounting methods leads to temporary differences in the recognition of revenue and expenses, creating deferred tax assets and liabilities.
Another factor contributing to the deferred tax asset and liability is the difference between tax and GAAP depreciation methods. Tax laws often allow for accelerated depreciation methods, while GAAP may require a more straight-line approach. This timing difference in depreciation expense recognition results in deferred tax implications.
Furthermore, the treatment of marketing funds between tax and GAAP also contributes to these deferred tax items. For the years ending December 31, 2024 and 2023, there are permanent differences of approximately -$30,000 and $54,000, respectively, due to these differing treatments. These permanent differences do not reverse in future years, impacting the deferred tax calculations.