Tax accounting

(noun)

The activity that focuses on satisfying legal accounting obligations through the preparation, analysis, and presentation of required tax documentation.

Related Terms

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.

  • Overview of Income Tax Accounting

    • There is a difference between Internal Revenue Service code and generally accepted accounting principles for reporting tax liability.
    • In order to properly account for income taxes, it is important to understand that the Internal Revenue Service code that governs accounting for tax liability isn't the same as the generally accepted accounting principles (GAAP) for reporting tax liability on the financial statements.
    • In this method, the deferred income tax amount is based on tax rates in effect when the temporary differences originated.
    • Reporting income tax is complicated by the fact that IRS code differs from generally accepted accounting principles
    • Summarize how to account for deferred taxes under the deferred method and the asset-liability method

  • Fiscal Policy -- Budget and Taxes

    • In 1930, the federal government accounted for just 3.3 percent of the nation's gross domestic product, or total output of goods and services excluding imports and exports.
    • In 1998, payroll taxes accounted for one-third of all federal revenues; employers and workers each had to pay an amount equal to 7.65 percent of their wages up to $68,400 a year.
    • The federal government raises another 10 percent of its revenue from a tax on corporate profits, while miscellaneous other taxes account for the remainder of its income.
    • Similarly, the government allows lower- and middle-income taxpayers to shelter from taxation certain amounts of money that they save in special Individual Retirement Accounts (IRAs) to meet their retirement expenses and to pay for their children's college education.
    • The Tax Reform Act replaced the previous law's 15 tax brackets, which had a top tax rate of 50 percent, with a system that had only two tax brackets -- 15 percent and 28 percent.

  • Other Current Liabilities: Sales Tax, Income Tax, Payroll, and Customer Advances

    • The sales tax payable account is reported in the current liability section of the balance sheet until the tax is paid.
    • Accounting principles and tax rules about recognition of expenses and revenue will vary at times, giving rise to book-tax differences.
    • Income tax payable can be accrued by debiting income tax expense and crediting income tax payable for the tax owed; the payable is disclosed in the current liability section until the tax is paid.
    • Deferred revenue is, in accrual accounting, money received for goods or services that have not yet been delivered and revenue on the sale has not been earned.
    • As the maintenance service is rendered and a portion of the fee is earned, $1,000 is recognized periodically each month as revenue and the deferred revenue account is reduced.

  • Disposable Income

    • Income left after paying taxes is referred to as disposable income.
    • Disposable income is thus total personal income minus personal current taxes .
    • In national accounts definitions:
    • Amounts required to be deducted by law include federal, state, and local taxes, state unemployment and disability taxes, social security taxes, and other garnishments or levies, but does not include such deductions as voluntary retirement contributions and transportation deductions.
    • It is whatever income is left after taxes.

  • The Federal Tax System

    • Citizens and residents are taxed on worldwide income and allowed a credit for foreign taxes.
    • Income subject to tax is determined under tax rules, not accounting principles, and includes almost all income.
    • State taxes are generally treated as a deductible expense for federal tax computation.
    • Sales tax is collected by the seller at the time of sale, or remitted as use tax by buyers of taxable items who did not pay sales tax.
    • Similar to federal income taxes, federal estate and gift taxes are imposed on worldwide property of citizens and residents and allow a credit for foreign taxes.

  • Taxes

    • Examples of an indirect tax include sales tax and VAT (value added tax).
    • Regressive Tax:In a regressive tax system, poorer families pay a higher tax rate.
    • Although a regressive tax system is never explicitly used, some claim a sales tax is a type of regressive tax.
    • An excise tax is typically heavier than an ad valorem, accounting for a higher fraction of a product's retail price.
    • Categorize types of taxes into ad valorem taxes and excise taxes

  • Valuing Accounts Receivable

    • These uncollectible accounts are called bad debts.
    • For tax purposes, companies must use the direct write-off method, under which bad debts are recognized only after the company is certain the debt will not be paid.
    • Recognizing the bad debt requires a journal entry that increases a bad debts expense account and decreases accounts receivable.
    • Accounts receivable is a control account that must have the same balance as the combined balance of every individual account in the accounts receivable subsidiary ledger.
    • Since the specific customer accounts that will become uncollectible are not yet known when the adjusting entry is made, a contra-asset account named allowance for bad debts, which is sometimes called allowance for doubtful accounts, is subtracted from accounts receivable to show the net realizable value of accounts receivable on the balance sheet.

  • Tax Incidence, Efficiency, and Fairness

    • Tax incidence is the analysis of the effect of a particular tax on the distribution of economic welfare.
    • In economics, tax incidence is the analysis of the effect of a particular tax on the distribution of economic welfare.
    • Tax incidence is said to "fall" upon the group that ultimately bears the burden of, or ultimately has to pay, the tax.
    • If the product (apples) is price inelastic to the consumer (whereby if price rose, a small demand loss would be accounted for by the extra revenue), the farmer is able to pass the entire tax on to consumers of apples by raising the price by $1.
    • In this example, consumers bear the entire burden of the tax; the tax incidence falls on consumers.

  • 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).