Essays on Income Tax Issues Assignment

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The paper 'Income Tax Issues' is a perfect example of a Finance and Accounting Assignment. Corporations are required to adhere to different regulations and rules. Corporations operate in a controlled business environment because different stakeholders are involved. For example, taxation is important since it supports governmental requirements and expenses. Internal Revenue Service (IRS) is responsible for collecting taxes in America. IRS also provides guidelines on income tax requirements. Therefore, the IRS has to incorporate Income Tax Expense and Taxes that are Payable based on numerous guidelines including GAAP and IRS. The frequently indicated tax on the financial statements is different from what the organizations are expected to pay.

An organization has to understand the different fundamentals and approaches in calculating income taxes. Among the numerous fundamentals, the common ones are effective income tax, deferred tax, deferred tax liability, deferred income tax, income tax expense, and income tax payable. Income tax payable factors into consideration the current liabilities of a corporation’ s balance sheet that includes taxes, which a corporation has to pay the government within a given period of time. However, organizations recognize income tax expenses are indicated in the balance sheets and other documentation that are related to taxable profit. The tax paid should be understood because of a temporary difference that exists when it comes to the basis of asset and or liability.

Therefore, the financial records indicated in the financial statement may either be deductible or taxable. Deferred tax liability represents the future taxable amounts and it increases the taxes that would be paid in the future. Conversely, deferred tax assets represent the refundable tax expected in the future because of the deductible temporary difference that is presented in the financial reporting at the end of the current year.

In addition, organizations and taxing institutions should understand the significance of deferred income tax. The deferred income tax is a liability because it reflects the already earned income but the tax has not been paid for the earned income within a given taxation period. Therefore, within a given financial period, numerous processes are integrated into ensuring the right taxes are documented for future references. The income tax analysis affects the companies differently based on the nature of the business and the geographical location of the company.

To understand the income tax analysis, Harold Corporation is used as an example in which the discussed taxation methods are applied. The discussion is premised on the amount of tax paid to the government and the nature of the entire income tax requirements.     The scenario of Harold’ s Corporation Harold Corporation's financial information for 2014 indicated a pretax income of $540,000.The following transactions indicate the reasons contributing to the existence of the difference between the taxable income and the pretax financial income: The tax return depreciation is higher compared with the income statement depreciation by $95,000 The amount of income that was collected as rent is higher by $121,000 compared with income indicated in the statements Permanent differences in terms of fines are indicated on the income statement as an expense of $33,000 The estimated tax rate for Harold Corporation is 36% for the previous years and the corporation plans to use the same estimation in future financial calculations.

Based on the available information of 2014, deferred taxes are not indicated. The following are some of the calculations to be done based on the provided financial data:

Reference

Barth, M. E., Landsman, W. R., Lang, M., & Williams, C. (2012). Are IFRS-based and US GAAP-based accounting amounts comparable? Journal of Accounting and Economics, 54(1), 68-93.

Hail, L., Leuz, C., & Wysocki, P. (2010). Global accounting convergence and the potential adoption of IFRS by the US (Part I): Conceptual underpinnings and economic analysis. Accounting Horizons, 24(3), 355-394.

Henry, E., Lin, S., & Yang, Y. W. (2009). The European-US “GAAP Gap”: IFRS to US GAAP Form 20-F Reconciliations. Accounting Horizons, 23(2), 121-150.

Lin, S., Riccardi, W., & Wang, C. (2012). Does accounting quality change following a switch from US GAAP to IFRS? Evidence from Germany. Journal of Accounting and Public Policy, 31(6), 641-657.

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