They say that there are only 3 things that are permanent in this world. Death, Change, and Taxes. Taxes are mandatory payments made by citizens to governments. Money collected from these payments are used to fund government projects and expenditures that would greatly benefit the public interest.
How Taxes Work
Majority of taxes are legislated, which means that lawmakers that have been elected by the citizens of a country determine everything regarding taxation. This would include, what to tax, how much, when to collect and how to allocate the proceeds. Citizens and businesses who are covered by tax laws should remit taxes on a set schedule or face the sanctions by the government. These may include fines and penalties and to some extent even imprisonment.
Taxes are always a topic of debate in most sectors. It has an effect on public spending. It is common for consumers to buy less when taxes rise and buy more when taxes fall.
When it comes to investing, taxes are also a major thing to consider. There are some transactions that may cause tax liabilities while others may not. The bottom line is, taxes will reduce returns on investments and this will have an effect on how people make financial decisions.
What Is Accounting?
Accounting is the system on how to make a comprehensive recording of financial transactions involving a business. It can also be the process of making a summary, analysis and report of these transactions to tax collection agencies. Businesses have a bookkeeper or accountant that handles this function. The larger the business, the need for a finance department with a number of employees performing the accounting function is necessary.
What Is Tax Accounting?
There are 2 things that a business can’t ignore, accounting and tax. Tax accounting includes accounting methods that focus on tax returns and payments rather than the preparation of public financial statements. It may also refer to the set of rules followed in order to know tax assets and liabilities in the accounting books of a business or individual.
Tax accounting will determine a business or individuals’ tax burden, which results in the proper computation of tax and correct tax document preparation. In the United States, tax accounting is regulated by the IRS (Internal Revenue Service). This will ensure that all tax laws are complied with by tax accounting professionals and individuals. The IRS also has required documents and forms for proper submission of tax information as mandated by law.
Tax Accounting For Individuals
For individual taxpayers, tax accounting will solely focus on income, deductions, investment gains or losses and all other transactions that may have an effect on the tax burden of the individual. It is not required to hire a tax accountant if an individual can provide the relevant information that would follow IRS guidelines.
Tax Accounting For Business
When we look at tax accounting from a business perspective, there is definitely more analysis of information needed to complete the tax accounting process. Transactions involving businesses tend to more complex as compared to individuals and focus is directed towards certain business obligations. This may include money spent towards specific business expenses and those that are given to shareholders. Any transaction that may affect the tax burden is thoroughly checked which may require the services of a tax accountant. This is not a requirement, but is a part of best practice involving larger companies.
Tax Accounting For Tax-Exempt Organization
There are instances when tax-exempt organizations need tax accounting. This is due to the law that requires all organizations to file annual returns. All information must be given pertaining to any incoming funds like grants or donations. How the funds are used should also be disclosed. This is done just to make sure that the organization conforms to all laws and regulations set forth for tax-exempt entities.
Whether you are a business or an individual, we need to accept that accounting and taxes will always be a part of our life. We should do our part as citizens to comply with the laws set forth by our legislators which they think are beneficial for all. We can lobby for laws that may seem outdated as part of our right to be heard by those who draft our laws