Tax accounting

Examples of Tax accounting in the following topics:

• Tax Accounting

  • Tax accounting couples legal obligations with financial accounting to ensure adherence to current tax laws.
  • Tax accounting is relatively simple to explain, though nuanced in execution.
  • In short, every region has specific tax accounting rules and regulations.
  • Tax accountants act as the bridge between an organization's accounting team and the reporting bodies in the region.
  • More tangibly, tax accounts will focus on the preparation, analysis, and presentation of tax payments and tax returns at all times.

• Net Income

  • Net income in accounting is an entity's income minus expenses for an accounting period.
  • Net income in accounting is an entity's income minus expenses for an accounting period.
  • Net income is a distinct accounting concept from profit.
  • Profit is a term that means different things to different people, and different line items in a financial statement may carry the term "profit," such as gross profit and profit before tax.
  • In contrast, net income is a precisely defined term in accounting.

• Making taxes pull double duty

  • The idea is simple: to tax what society wants less of (e.g. pollution and waste) and to reduce or eliminate taxes on what it wants more of (employment and income).
  • How much tax would have to be imposed?
  • In the United States, this would, in part, mean imposing a tax on gasoline, diesel fuel and motor oil of around 6% and a coal-produced electricity tax of about 14%.
  • Corporate taxes could be reduced or eliminated, employment taxes could end, and personal income tax could be greatly lowered.
  • Taxes on interest, savings plans, retirement accounts and college tuition accounts could also be eliminated.

• The benefit of benefits

  • These are attractive to businesses as well as employees because they provide both with some tax advantages.
  • For example, if a company offers employees a flexible spending account, money that employees receive in this account may be deducted from total earnings on employees' tax returns.
  • Employees can "use pre-tax dollars to pay for eligible health care and dependent care expenses", however any money that remains in the account at the end of the year will be forfeited (SHPS).
  • This is a benefit to employees because individuals will receive a portion of their income tax-free.
  • They are not usually required by the government but companies may receive tax benefits for some types of these non-monetary payments.

• Why an accounting system is important

  • Professional accountants look at the accounting records and reports of a business from two perspectives.
  • The term they use to describe these two perspectives is financial accounting and managerial accounting.
  • "Financial accountancy is governed by both local and international accounting standards".
  • In addition, financial accounting records and financial statements are essential sources of information for the preparation of tax returns.
  • Also, note that financial accounting reports must be prepared in accordance with national and international accounting standards.

• Personal Financial Management

  • One might also consider individual or employer sponsored retirement plans, social security benefits, and income tax management.
  • Have an emergency savings account.
  • Also, keep your emergency savings in an account that will be fairly liquid — such as a bank savings account, money market account, or a short-term certificate of deposit (CD) — so you can withdraw the money relatively quickly, if necessary.
  • If your employer matches a portion of your payroll contributions to a tax-advantaged retirement savings plan, "not participating means you are passing up free money and perhaps losing out on a valuable tax break," added Reynolds.
  • Review your existing accounts and comparison shop for the best deals.

• Basic types of accounts

  • The six basic types of accounts used in a typical accounting system, according to Wikipedia are:
  • Contra-accounts: from the term ciccia, meaning to deduct, these accounts are opposite to the other five above mentioned types of accounts.For instance, a contra-asset account is accumulated depreciation.This label represents deductions to a relatively permanent asset like a building.It accumulates an annual charge in recognition that a fixed asset like a building is not used up over the course of a year, but that it has a useful life measured in multiple years.Since in certain countries and under certain economic conditions real estate tends to steadily rise in price, perhaps a better example is a truck purchased for use in the business.Its value is more likely to continue to decrease over the years.Even though the market value of a building might increase rather than decrease over the years, accountants will still reduce its value by an annual depreciation charge each year.This is a good example of how financial accounting differs from managerial accounting from the owner's perspective.Depreciation on a building or a truck reduces income for tax purposes in most countries, so it is to the owner's advantage to reflect depreciation charges in the company's accounting records.On the other hand, you can bet that the owner knows the true market value of the building when it comes time to sell it!
  • Typically, accounts in a chart of accounts each have an account number.
  • In the same way, an account number in a chart of accounts uniquely identifies an account and is easier to use in a computerized general accounting system.
  • The next step is to decide the breakdown of accounts you need so that you set up an account for the detailed information you need for each account type.

• Government and Nonprofit Accounting

  • There is an important difference between private sector accounting and governmental accounting.
  • The unique objectives of government accounting do not preclude the use of the double entry accounting system.
  • The accounting of activities for accountability purposes.
  • The taxpayer, a very significant group, simply wants to pay as little taxes as possible for the essential services for which money is being coerced by law.
  • The governmental accounting system has a different focus for measuring accounting than private sector accounting.

• Introduction to Taxes and Legislation

  • When setting a tax, the idea is to match price with cost.
  • Unfortunately, the cost of what's heavily taxed, what's minimally taxed, and what's not taxed sometimes doesn't square up.
  • (In a sustainability-based accounting system, health and medical damages resulting from improper disposal would be placed under disposal/future costs', which is one of the three major costs a business should strive to eliminate as depicted at the bottom of diagram A-2 on page 5 of the Introduction. ) Of course, raising money isn't the only function taxes perform.
  • Taxes also carry the potential to discourage the sale of the items or activities being taxed (which is why high taxes are often placed on alcohol and tobacco).
  • Equally as mind-boggling is the fact that the more a person works the more taxes he or she pays (in the USA alone, two-thirds of personal income tax – which constitutes 80% of the tax funds raised by the US government – is derived from the sale of labour).

• Sample Income Statement

  • When combined with 'income from operations,' this yields 'income before taxes. ' The final step is to deduct taxes, which finally produces the net income for the period measured.
  • Some numbers depend on the accounting methods used (using FIFO or LIFO accounting to measure inventory level).
  • Depreciation / Amortization: The charge with respect to fixed or intangible assets that have been capitalized on the balance sheet for a specific accounting period.
  • Income tax expense: Sum of the amount of tax payable to tax authorities in the current reporting period (current tax liabilities/tax payable) and the amount of deferred tax liabilities or assets.
  • They are reported net of taxes.