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Accounting
Permanent Difference
A difference between accounting profit and taxable profit that will never reverse in the future.
Permanent differences affect the effective tax rate but do not create deferred tax assets or liabilities. Common examples include non-deductible expenses, tax-exempt income, and certain government grants.
It's a one-way street — the accounting books and the tax return will always disagree on this item.
Real world: Entertainment expenses or fines are recorded as expenses in the accounts but are not tax-deductible. This creates a permanent difference — the company pays more tax than the accounting profit would suggest, with no future reversal.
💡 Permanent differences mean the taxman and the accountant will never fully agree.