What are Timing Differences?

Timing differences are the intervals between when revenues and expenses are reported for financial statement and income tax reporting purposes. For example, a business might use an accelerated depreciation method to increase its depreciation expense for tax reporting purposes in the current year, while reporting depreciation at a reduced rate on its income statement that spreads the expense more evenly over several years. Over a period of time, these timing differences will even out, though they may be replaced by a new set of timing differences.

When there are timing differences, the amount of reported taxable income could vary significantly from the amount reported on the income statement.