Customer satisfaction is one of the basic principles with which we operate. Many of our customers were skeptical at first when contacting us for accounting for income taxes. But over time they have come to view us as reliable. This allowed our existing client base to contact their own friends and family who could benefit from our cheap and quality service as well. Thus, creating a hegemony that has continued to expand over time.
Our increasing contacts, influence, and reach in the market have allowed us to create a portfolio of the best companies in the market. These companies come in all sizes ranging from small to upper-middle categories. We especially pay special attention to start-up businesses, even if they are very small n stature. A startup allows us to design it all according to our standard specifications. This makes the business organization and operations management extremely smooth. Timely intervention from a responsible accounting for income taxes services carries several infringe benefits.
Understanding Income Tax
Income Tax is a government-sanctioned duty that is imposed on the profits earned by an individual or a corporation. Income tax services are offered universally, as income tax is universal in its imposition. Every citizen must pay it one way or another. Most individuals or corporations prefer to hand over this headache to accounting for income tax services.
In such a case when an individual or a corporation fails to file or pay for their due taxes, they are likely to be imposed with certain liabilities by the relevant tax authority. The individuals or corporations may lobby for the extension of deadlines on the payable taxes, so they would have to pay it at a later and more convenient time to the relevant tax collection agency. Liabilities can be avoided by hiring an appropriate income tax service. Liabilities can be triggered by a number of reasons, such as;
- Realization of Operating Income
- Receipt of Inheritance
- Sale of Assets
Understanding Accounting for Income Taxes
Accounting for Income Taxes in a timely manner allows taxpayers to recognize and avoid the imposition of tax liabilities that may be levied against them or their corporation by a tax agency, such as the IRS. It also helps in the determination of the tax expenses for the running fiscal period. Revenues or monetary gains that are deemed taxable either prior to the recognition in financial statements or after it are all deemed accountable in this process. Accounting for income tax services are the ones who understand these problems but also how to settle them.
There are concepts that must be understood properly if an interested party wishes to gain a deeper understanding of accounting for income taxes. These concepts are necessary for the proper recognition, understanding, and comprehension of several terminologies and procedures that are part of it. they are the following;
1. Temporary Differences
A business organization might record an asset or a projected liability at one value for financial reporting purposes, while simultaneously maintaining separate records for tax purposes, which carry an entirely different value. This difference is caused by the tax recognition policies created by relevant taxing authorities. Its purpose is they may require the deferral or the acceleration of certain classes of items for tax reporting purposes.
The differences, however, are only temporary. They will inevitably be settled when the assets are recovered and the ensuing liabilities settled. Such difference which can result in the imposition of a taxable amount at a later date is called a taxable temporary difference. While another type of difference, which results in a deductible amount at a later date is called a deductible temporary period. It must be noted that a financial statement audit cannot be conducted until these differences have been resolved effectively.
View the following examples of temporary differences;
A. The revenues that are taxable either before or after their recognition in financial statements. For instance, an allowance for doubtful accounts may not be immediately tax deductible, but instead might be deferred temporarily until specific receivables are declared as bad debts.
B. Such Expenses or Losses that are tax deductible either before or after they are recognized in the financial statements analysis count as temporary differences. For Instance, some fixed assets are tax deductible, but can only be recognized through long-term depreciation i.e. temporary differences.
C. There are certain assets that are reduced on a tax basis by investment in the tax credits. They could count as temporary differences.
Line-By-Line or Targeted Audits
Line-by-line audits are the most dreaded audits. The target for this Audit is generally chosen at random. Every single line on the return is examined. While this is the undesirable form of Audit, it is also the rarest. It only occurs at the behest of the National Research Program (NRP). These Audits provide valuable data to the IRS. It gives them directions to conduct future targeted audits.
2. CarryBacks and CarryForwards
A company may find itself in a position where it has more tax deductions or tax credits stored up than it can possibly use in a single fiscal year’s tax return to offset the losses levied when being burdened with liabilities by the respective tax agency. In such a situation, said company carries the option of offsetting these credits and deductions for their monetary value against the taxable income or liabilities of tax returns in earlier or later time periods, as they think suitable.
Since the company always has the option of applying for tax refunds, carrying these amounts back to tax returns would prove to be more valuable. That is why the excess tax deduction or credits are usually carried back, while the remaining amount is held in reserve for future usage.
CarryForwards tend to expire if they are not utilized within a limited time frame. A company must recognize a receivable against an amount of taxes paid in prior years that have been deemed refundable because of a CarryBack. Any tax asset which has been deferred can be realized for CarryForward.
However, it can also offset valuation allowance based on the probability that some portion of CarryForward will not be realized. Since they can easily advise you to offset such unnecessary headaches, it is advisable to hire an income tax service near you.
3. Deferred Tax Liabilities & Assets
The deferred tax liabilities take place on deferred tax assets due to the presence of temporary differences. They represent potential changes in future periods for taxes payable or refundable.
These above-mentioned factors can give out quite complex calculations for the relevant party to estimate the appropriate income tax information for recognition and reporting in the relevant financial statements’ analysis or reports.
Essentials in Accounting for Income Taxes
There is an inherent complexity in the calculation and manipulation of income taxes to the taxpayer’s preference. However, the essential accounting in this area is derived from the need to recognize two basic particulars, which are;
- Current year. The recognition of a tax liability or tax assets on the basis of the estimated amount of income taxes payable or refundable for the running fiscal year.
- Future years. The recognition of a deferred tax liability or tax assets on the basis of estimated effects of CarryForwards and temporary differences in the future years.
Based on the preceding points, the general accounting for income taxes is in the following steps;
- Create a tax liability for estimated taxes payable, or create a tax asset for tax refunds in connection to the current or previous years.
- Create a deferred tax liability for the future taxes payable, or create a deferred tax asset for future tax refunds that can be attributed to temporary differences and CarryForwards.
- Calculate the Total income tax expense to be paid.
SG Inc. CPA offers Accounting for income taxes services in Texas and California. We have complicated accounting requirements which prompt us to draw up everything from the basic financial statements to compilations, analyses, and reviews.
We also provide sales tax services. We make a habit to take the time to thoroughly review all your data with you throughout the fiscal year to offer insight. We help you understand where the numbers come from and what they represent. Our financial analysis, income tax services, sales tax services and so many more will prove as necessary to the rise of your business to success and driving all your competitors into the ground.
