Taxable Income Essay

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Taxable income and accounting income? Basically, taxable income is what your income is according to tax law, which is different to what accounting standards consider income to be. Some income and expenditure items are excluded for tax purposes (i.e. they are not assessable or not deductible) but are considered legitimate income or expenditure for accounting purposes. A company’s accounting profit and taxable income can be different in certain reporting periods because of the differences in financial reporting and tax filing. While accounting profit is computed using the accrual method of financial accounting based on generally accepted accounting principles, or GAAP, taxable income is calculated using the cash method of tax accounting based on tax rules. As a result, companies report accrued revenues and expenses in financial reporting to derive accounting profit, and cash revenues and expenses in tax reporting to obtain taxable income. Adjusted income and statutory income from business Adjusted income is the first tax concept in the tax computation of a company. The Act provides business income to claim capital allowances on any qualifying capital expenditure used in the business. Balancing adjustment would need to compute when there is a disposal of qualifying asset. Balancing charge is added to adjusted income while balancing allowance is deducted from adjusted income. The adjusted income less out all capital allowances would be statutory income. The computation format is as follow: | - | + | Net profit before tax | | xx | Investment income | xx | | Investment expense | | xx | Capital gain | xx | | Capital loss | | xx | Section 39 prohibited expenses | | xx | Capital expenditure | | xx | Double deduction : Additional deduction | xx | |

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