Accounting for Income Taxes Essay

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Accounting for Income Taxes Ambre Snider ACCT320-V3WW Professor James Caldwell November 1, 2011 Accounting for Income Taxes There are many factors to be considered when accounting for the income taxes of a company or individual. The tax rates of companies will also vary according to many different factors such as a filing status and type of company, for example whether it is a corporation or partnership. According to Hoyle and Skender companies prefer to defer paying taxes as long as possible so that they can make use of the money before handing it over to the government (2012). The FASB codification states that there are two basic objectives that are considered when accounting for income taxes. The first of those objectives is “to recognize the amount of taxes payable or refundable for the current year” (Accounting Standards Codification). The second is whether or not to recognize deferred assets or liabilities for the “estimated future tax affects attributable to temporary differences and carry forwards” (Accounting Standards Codification). However, there are some events that do not have tax consequences in certain jurisdictions, such as municipal bond interest and fines. There are also certain expenses that are not deductible. The tax basis of liabilities and assets is one of the essential elements in determining deferred tax assets and liabilities. Under Generally Accepted Accounting Principles, further shortened to GAAP, the basis for determining a deferred tax asset or a deferred tax liability is figured by finding the difference between the carrying value and the tax value of an asset (PWC). The applicable tax, whether for future periods or a current period, is then figured on the difference. The PWC website produced a publication that states “the tax base of an asset is defined as the amount that will be deductible for tax purposes

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