Purpose of Tax Accounting

What is Tax Accounting?

Tax accounting is a method of accounting that is applied to all the assessees whether it is individuals, businesses, partnerships, or other entities. It is the part of accounting that is concerned with the payment of taxes and filing of tax returns. This method of accounting focuses on taxes instead of financial statements. The Internal Revenue Code governs tax accounting and sets out the rules and regulations related to taxation. It is mainly interested in tracking funds linked with individuals and businesses....

How does Tax Accounting Work?

Following is an overview of how tax accounting works effectively,...

Principles of Tax Accounting

Tax accounting is regulated by the Internal Revenue Service and is guided by several principles that ensure regular and accurate reporting. All the assessors must follow tax accounting principles while preparing and filing their tax returns. These principles are,...

Purpose of Tax Accounting

Tax accounting serves an important purpose because individuals and body corporations need to determine their taxable income and the amount of tax that must be paid by them. The primary purpose of tax accounting is to ensure compliance with tax laws and regulations implemented by the government with accurate and timely preparation of tax returns. It is an important part of financial planning. Individuals and businesses make financial decisions by considering the tax regulations of various transactions, investments, and activities. In summary, tax accounting helps in tax planning. Tax accounting helps in availing benefits offered by the government in the form of deductions, exemptions and credits. It involves identifying and claiming the incentives that an assessee is eligible for. These deductions help in reducing the tax liability of the assessee....

Types of Tax Accounting

1. Individual Tax Accounting: This type of tax accounting focuses on the financial activities of individual taxpayers and determining their tax liability. Slab rates are applied to calculate the total tax liability of an individual. It involves reporting income from various sources, total expenses, claiming various deductions, rebates and credits, and complying with tax laws applicable to individuals....

Methods of Tax Accounting

Tax accounting methods may have an impact on the taxable income and tax liability of an assessee. The two primary methods for tax accounting are the cash method and the accrual method. However, a taxpayer can employ different methods for the treatment of any significant item, such as inventory, depreciation methods, etc. The two permissible methods for tax accounting are,...

Tax Accountant and Management Accountant

1. Tax Accountant: Tax accountant specializes in tax accounting and use their knowledge to analyse financial statements, prepare tax payments, file tax returns and complete regular tax reports. These professionals provide advisory services to their clients and help them navigate the complexities of tax laws and ensure compliance with relevant regulations. Tax accountants help individuals and business entities in tax planning. They also identify and claim deductions for which their clients are eligible which will ultimately reduce their tax liability and save money....

Advantages of Tax Accounting

1. Legal Compliance: Tax accounting ensures the compliance of tax laws and regulations applicable to individuals and business entities. Professionals make accurate and timely preparation of tax returns which is essential for compliance with tax laws and saving their clients from late fees....

Disadvantages of Tax Accounting

1. Time-Consuming: The process of tax accounting involves bookkeeping, analysis, and strategic planning which can be time-consuming for businesses that have multiple transactions....

How are Taxes Calculated for Businesses?

1. Choosing Accounting Method: A business needs to choose one of the two permissible accounting methods: the cash method and the accrual method....

Examples of Tax Accounting for a Business

1. Depreciation: Depreciation is the reduction in the value of the asset due to its usage over time. Companies use it to reduce the cost of capital assets. Tax accountants use different methods for the calculation of depreciation such as the straight line method or written down value method. Depreciation is one of the allowed deductions for businesses which is shown in the debit side of the profit and loss account....

Difference Between Tax Accounting and Financial Accounting

Basis Tax Accounting Financial Accounting Meaning It is the sub-division of accounting that deals with the preparation of tax returns and tax payments. It is the branch of accounting that involves the systematic recording, summarizing, and reporting of an organization’s financial transactions. Objective The goal of tax accounting is to ensure compliance with tax laws while minimizing tax liability. It concentrates on accruing, managing wealth and making informed decisions for the business. Focus on Income It focuses on determining the net taxable income to calculate the total tax liability of the business. It focuses on the net income in the profit and loss account and balance sheet of the company which shows the financial position of the business Information User It primarily serves tax authorities and focuses on compliance with laws. The users of financial accounting information are shareholders, creditors and other stakeholders...

How to Start a Career in Tax Accounting?

Starting a career in tax accounting requires knowledge in the field of taxation and a combination of professional certificates and practical experience....

Frequently Asked Questions(FAQs)

1. What Is the main purpose of Tax Accounting?...