According to Accounting Theory: Contemporary Accounting Issues by Evans, accountants have developed two alternative approaches to accounting for income taxes, which are the cash method and the allocation method. The cash method is described as a simple and direct approach. The amount of income taxes actually paid for the year is reported on the Income Statement. The amount comes from the firm's income tax return and fit is not adjusted in any way. Therefore, the firm's actual transaction to record its income tax liability is the basis for the amount of the income tax expense reported on the Income Statement. The allocation method is a bit different. The actual amount of tax that is paid in the year is ignored when it comes to reporting income tax expense on the Income Statement. The amount of income tax expense reported on the Income Statement is based on the on the income tax rate that the firm pays, which is applied to the amount of pretax income. This makes the Income Statement perfectly consistent with the before-tax income. Using the allocation method makes it look like all items on the Income Statement based on the same method.
The development of accounting pronouncements for taxation reveals the difficulty that standard-setter s had with this topic. Following are summaries of major pronouncements dealing with accounting for income taxes.
APB OPINION #11
This pronouncement required the deferral method of accounting for income taxes. When the accounting net income exceeded taxable net income, balancing credit should be recognized, when the taxable net income exceeded the accounting, a balancing debit should be recognized. This was considered a deferred credit and a deferred debit. Deferred charges and credits were default classification and were placed on the Balance Sheet in what was called "no man's land," or some undefined region, between liabilities and owner's equity for deferred credits and between assets and liabilities for deferred charges. Under APB Opinion #11 it was believed that the balancing credits and debits would eventually reverse and cancel out and therefore it was to be treated as a temporary measure.
From 1967 thru 1980, firms followed the comprehensive tax allocation procedures under APB Opinion #11 and reported deferred charges and credits. However, some problems arose from doing so. Because of the changes in tax rates and the nature of firm's investment, the balance of deferred tax credits on a firm's balance sheet began to grow in size instead of reversing and canceling out.
Financial Accounting Standards Board. (1985). Statement of Financial Accounting Standards No. 86. Norwalk. Retrieved April 7, 2014, from http://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175820922177&blobheader=application%2Fpdf&blobheadername2=Content-Length&blobheadername1=Content-Disposition&blobheadervalue2=189998&blobheadervalue1=filename%3Dfas86.pdf&blobcol=url
Blaise M. Sonnier, J.D., DBA. (2012). Circular 230: Its Day-to-Day Impact on Tax Practices. Retrieved October 12, 2016, from http://www.thetaxadviser.com/issues/2012/feb/tpr-feb12.html
Paragraph 5.7.10 a gain or loss on a financial asset measured at fair value through other comprehensive income in accordance with paragraph 4.1.2A should recognize in the other comprehensive income, except the impairment gains or losses and foreign exchange gains and losses until the financial asset is derecognized or reclassified. When the financial asset is derecognized the cumulative gain or loss previously recognized in another comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment. If the financial asset is reclassified out of the fair value through other comprehensive income measurement category, the entity should account for the cumulative gain or loss that was previously recognized in other comprehensive
ASC 606 is a new revenue recognition principle that provide standards for recognizing revenue from contracts that provide goods and or services to a consumer. EY identifies the following five steps to apply the new principle: "Identify the contract(s) with a customer, identify the performance obligations in the contract, determine the transaction price, Allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the entity satisfies a performance obligation.("Technical")" Section 451 of the IRC generally requires taxable income to be reported by completing the all-events test and the amount is reasonably determinable ("26"). This can create a variation from the financial statements and the taxable income amount. To further study
JACKSON, S. B., SHOEMAKER, P. A., BARRICK, J. A., & BURTON, F. (2005). Taxpayers' Prepayment Positions and Tax Return Preparation Fees. Contemporary Accounting Research, 22(2), 409-447.
The goal of the Codification is to simplify the organization of thousands of authoritative U.S. accounting pronouncements issued by multiple standard-setters. To achieve this goal, the FASB initiated a project to integrate and topically organize all relevant accounting pronouncements issued by the U.S. standard-setters including those of the FASB, the American Institute of Certified Public Accountants (AICPA), and the Emerging Issues Task Force (EITF)
Dhaliwal, D.S., Newberry, K.J., Weaver, C.D. Corporate Taxes and Financing Methods for Taxable Acquisitions, Contemporary Accounting Research. 22 (1), Spring 2005.
Tiller, Mikel G., Jan R. Williams, and "Revenue Recognition Under New FASB Statements." The CPA Journal 52(1982)
For this assignment I have chosen two states to compare their tax systems and how effective they are. As Dr. Timothy Kersey stated, “Ever-changing economic conditions and citizen demands place continuous pressure on state leaders to develop effective tax systems, but not all states are up to the task.” The two states I have chosen are Nevada and Oklahoma. Yet random, I chose these states because I’d like to inform not only myself but others as well on how their tax systems work.
Income tax is one form of tax paid by those in the labor force to the government. There are different types of taxes that governments can use when asking for money from the public: regressive, proportional, progressive, and lump sum. A regressive tax is when taxpayers in the lower-income bracket pay a higher fraction of their income than high-income taxpayer. A proportional tax is when everybody pays the same flat rate, regardless of his or her amount of income. A progressive tax is when higher-income taxpayers pay a higher fraction of their income than lower-income taxpayers do. A lump-sum tax is similar to proportional where everyone pays the same, but in this case it is the dollar amount; everyone pays the same dollar amount in taxes regardless of their amount of income. Progressive tax is commonly used in a majority of countries around the world, including the United States in regards of their income tax.
This article was about the IRS warning people about scammers trying to scam them out of their money, this is a type of fraud because people are stealing millions of dollars from innocent people by tricking them into giving them money they don’t owe. This has been going on for a long time, as soon as someone found out how to make it believable they did it. This article talked about how the IRS scammers are so successful at stealing people’s money. They said they scare people, if I got a call from the IRS saying what the scammers call says I would be scared to. They said in total the scammers have got $23 million.
Deferred tax is an accounting measure, use to match the tax effects of transactions with their accounting impact. The differences of treatments for several items in accounting profit and loss and taxation have created temporary differences. These temporary differences are differences between carrying amounts of an assets or liabilities in the financial statement of financial position and its tax base (Choo & Lazar, 2014). There are two types of temporary differences which are taxable temporary differences and deductible temporary differences. A taxable temporary difference indicates that a taxation liability has been deferred in the past or current period and company will pay more in the future whereas deductible temporary differences indicate that a taxation liability has been accelerated in the past or current period and company will pay less tax in the future.
The tax system is an important part of our country's method of ensuring that government leaders are paid, roads are maintained, and we have a well-armed military to defend all of our citizens. But that doesn't stop the millions of people who live in the United States from dreading the complicated procedures set up by the Internal Revenue System (IRS) that they have to go through to pay their fair share of the expenses each year. Part of the reason for this is that there are so many myths surrounding the process. Unfortunately, those who believe in them end up with costly fines and legal problems though. So to help clear things up, the following is a list of five of the top tax myths and the real truth behind them all.
...ny should list future tax cost of transaction’s deferred gain as liability. Company should record difference between asset gain and future tax liability as an increase in net worth.
Empirical studies were conducted all over the world to estimate the compliance cost. Evans (2008) acknowledged that the number of the compliance and/or administrative cost studies conducted and published after the Haig’s (probably first organized compliance cost study) study in 1935 is more than 100. Despite the existence of the large body of literature, the concept of tax compliance cost remain ambiguous. Most of the research narrow the concept to the objective of their research. Therefore, this essay aims at bringing an overview of the concept in single essay. The next section of the essay discusses the definitions of compliance cost, the third section discusses aspects of compliance cost and finally, the last section gives a recap of the essay.