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Tax accounting is accounting for tax purposes. In the United States, tax accounting is governed by the Internal Revenue Code (IRC). Tax accounting is defined as the field of accounting that considers the tax consequences and implications of every transaction upon the company’s operations. Tax accounting is a method of producing financial statements that uses the same methods that will apply to your tax return. Unlike generally accepted accounting principles (gaap), tax accounting is an extensive set of laws and regulations required of businesses to guide them in submitting income tax information.
Penalties can be incurred if the proper method of tax accounting is not used or if requests to change the accounting method have not been done properly according to the correct internal revenue code section, which is section 446(f). The cash method, or cash basis, of tax accounting is simply recording transactions as the money is exchanged. For small businesses that may not pay a secretary or have an accounting staff, the cash method of recording tax accounting is fitting as long as the business is not required to file a tax return using the accrual method.
Income tax accounting is a particularly troublesome area for many companies because of the complexity of tax return law. Tax accounting is an intensive introduction to federal income-tax concepts, statutes, and regulations, and their use in accounting and planning of business activities of corporations, partnerships, and individual proprietorships.
Knowing what tax accounting is and what it involves, along with what a tax accountant does for the business, helps the business prepare for his future tax return preparation and will help to assure that the business records it’s items properly and efficiently as established by law. For sole traders and partnerships, annual tax accounting is essential to provide profit & loss statements which will in turn be used form part of your individual income tax return.
Finally, income tax accounting is important for complying with tax laws, as well as for minimizing tax expenditures. The most challenging aspect of tax accounting is not the preparation of an income tax return, but tax planning. By utilizing tax accounting to create a tax plan, a tax accountant can help you minimize your taxes and keep more money in your pocket.
See what Greenwald & Company, P.C., CPAs, an atlanta cpa firm (we service clients nationwide), can do to help with your tax accounting needs by getting more information at http://www.cpa-atlanta.com, filling out the contact form on our contact us page or by calling us at 770-956-0134.
