The essential accounting for income taxes is to recognize tax liabilities for estimated income taxes payable, and determine the tax expense for the current period. Before delving further into the income taxes topic, we must clarify several concepts that are essential to understanding the related income tax accounting. Despite the complexity inherent in income taxes, the essential accounting in this area is derived from the need to recognize two items, which are: Current year. The recognition of a tax liability or tax asset based on the estimated amount of income taxes payable or refundable for the current year. Future years. The recognition of a deferred tax liability or tax asset based on the estimated effects in future years of carryforwards and temporary differences.