I need help understanding the intuition behind this problem.

So my logic was in year 1 the deferred tax asset account was (10,000*.25) = 2500

In year 2 taxable income was 40,000 so (40,000*.25) gets you 10,000 taxes payable due

HOWEVER

under IRS rules you can only take tax deductions for 80% of the 10,000 payable.

so

10,000*.80 = 8,000

so DTA should be getting reduced by 8,000 in year 2

while taxes payable should be 2,000

then plug 10,0000

please explain where I'm going wrong in my logic I'll rate thumbs up if you can thanks.

DNSE Inc. began operations in Year 1. In its first year the company had a net operating loss of $(10,000), which was carried forward and used to reduce income tax payable in Year 2. In Year 2, DNSE had taxable income of $40,000 before the use of the NOL carryforward. At December 31 of Year 2, DNSE Inc. determines that it should have a deferred tax asset ending balance of $25,000 related to Year 2 deferred revenue. The income tax rate is 25%. No valuation allowance has been established. Required a. Provide the journal entry to record income taxes in Year 2, assuming that no valuation allowance is required. Year 2JE tax expense 10,000 DTAtaxespayable8,0092,000