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Is tax-exempt interest a permanent or temporary difference?

Differences that result from interest income being earned from an investment made in state or municipal bonds. represents a permanent difference. These income items will be included in calculating pretax income for financial statement net income but will be excluded for calculating taxable income. That means that this is an example of a permanent difference.

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  • What is a permanent difference in tax accounting?

    Permanent differences are items of revenue and expenses that will either enter into pretax Generally Accepted Principles (GAAP) but won’t ever be allocated into taxable income. In addition, these differences won’t ever affect the deferred tax computation, and will only affect the current tax computation.