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Concept Version 13
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Tax Accounting

Tax accounting couples legal obligations with financial accounting to ensure adherence to current tax laws.

Learning Objective

  • Understand the role of tax accounting in both small and large organizations


Key Points

    • Every region has specific tax accounting rules and regulations. Adhering to these rules and regulations is critical to avoiding penalties and ensuring ethical behavior in the country (and/or state) of operation.
    • Tax accountants act as a bridge between the organization and the governments that collect financial obligations. As a result, it requires a combination of financial and legal knowledge.
    • On the financial side, tax accounts must understand the legal implications of decisions, as both opportunities and threats exist.
    • On the legal side, the preparation, assessment, and delivery of tax documents is a time-sensitive and detail-oriented process that must be regularly maintained.
    • Some unique situations exist in tax accounting, such as accounting for non-profit organizations (who don't pay taxes). This still requires considerable legal know how and operational alignment with governmental regulations.

Term

  • Tax accounting

    The activity that focusesĀ on satisfying legal accounting obligations through the preparation, analysis, and presentation of required tax documentation.


Full Text

Tax accounting is relatively simple to explain, though nuanced in execution. In short, every region has specific tax accounting rules and regulations. Adhering to these rules and regulations is critical to avoiding penalties and ensuring ethical behavior in the country (and/or state) of operation. Tax accounting is therefore a combination of legal and financial knowledge.

The Financial Side

Tax accountants act as the bridge between an organization's accounting team and the reporting bodies in the region. As a result, the primary role of a tax accountant is to understand the business' current operating status, distill profitability before tax, and report earnings.

On the strategic side of this, tax accountants can consider any tax implications as it pertains to certain strategic decisions or tactics. Identifying and understanding opportunities in a region's tax code is a win win. For example, some manufacturers can receive tax breaks for environmentally friendly operations, often high enough tax breaks to offset the cost of implementing them. Tax accountants should be aware of these opportunities in the legal environment.

The Legal Side

More tangibly, tax accounts will focus on the preparation, analysis, and presentation of tax payments and tax returns at all times. There are specialized accounting principles and obligations for each area of operation which must be met. Keeping up to date on what is expected, and ensuring alignment on across the organization, is their primary responsibility.

Some exceptions exist, of course, such as non-profit organizations. Non-profits have unique tax preparation requirements due to their no-tax status. This comes along with its fair share of obligations, paperwork, and approvals from the governing bodies.

Various Accounting Perspectives

This image demonstrates the various responsibilities and perspectives of different forms of accounting (those being tax accounting, managerial accounting and financial accounting).

This image demonstrates the various responsibilities and perspectives of different forms of accounting (those being tax accounting, managerial accounting and financial accounting).
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