What are the differences and similarites of GAAP and tax accounting. Why are they different?

GAAP attempts to recognize revenues earned in the proper period and match that revenue with the expenses incurred to produce that revenue. Tax accounting does not do this. In most cases it is the expenses that cause the difference with depreciation being a prime example. If you claim the maximum Section 179 deduction on your tax return for 2008 of $250,000, this would be a difference since for GAAP you would have to depreciate the asset over its useful life.

In some cases this works to the company's benefit since GAAP would allow you to report more income which makes the banker and shareholders happy. However, in most cases this does reverse over time.