Tax accounting in the United States

Tax accounting in the United States

U.S. tax accounting refers to accounting for tax purposes in the United States. Unlike most countries, the United States has a comprehensive set of accounting principles for tax purposes, prescribed by tax law, which are separate and distinct from Generally Accepted Accounting Principles.

Basic rules

The Internal Revenue Code governs the application of tax accounting. [http://www.law.cornell.edu/uscode/search/display.html?terms=446&url=/uscode/html/uscode26/usc_sec_26_00000446----000-.html Section 446] sets the basic rules for tax accounting. Tax accounting under [http://www.law.cornell.edu/uscode/search/display.html?terms=446&url=/uscode/html/uscode26/usc_sec_26_00000446----000-.html section 446(a)] emphasizes consistency for a tax accounting method with references to the applied financial accounting to determine the proper method. So the taxpayer must choose a tax accounting method using their financial accounting method as a reference point.

Types of tax accounting methods

Proper accounting methods are found in [http://www.law.cornell.edu/uscode/search/display.html?terms=446&url=/uscode/html/uscode26/usc_sec_26_00000446----000-.html section 446(c)(1) to (4)] which permits cash, accrual, and other methods approved by the IRS including combinations.

After choosing a tax accounting method, under [http://www.law.cornell.edu/uscode/search/display.html?terms=446&url=/uscode/html/uscode26/usc_sec_26_00000446----000-.html section 446(b)] the Secretary of the Treasury has wide discretion to re-compute the taxable income of the taxpayer by changing the accounting method to be used by the taxpayer in order to clearly reflect the taxpayer's income.

If the taxpayer engages in more than one business then it may use a different method for each business according to [http://www.law.cornell.edu/uscode/search/display.html?terms=446&url=/uscode/html/uscode26/usc_sec_26_00000446----000-.html section 446(d)] .

Tax accounting method changes

If the taxpayer wants to change their tax accounting method, [http://www.law.cornell.edu/uscode/search/display.html?terms=446&url=/uscode/html/uscode26/usc_sec_26_00000446----000-.html section 446(e)] requires the taxpayer to acquire the consent of the Secretary of the Treasury. There are two kinds of changes, one where you must receive a letter of approval from the Secretary of the Treasury. Another type of change comes from a series of more routine changes each of which is an automatic change. To get the automatic change the taxpayer must fill out a form and return it to the Secretary of the Treasury.

The taxpayer can adopt another method if the taxpayer files a tax return using that method for two consecutive years. This is different from changing a tax accounting method under the release of the Secretary of the Treasury because in the case of adopting another method the IRS may assess fines and reallocate taxable income. If the taxpayer wants to return to the previous method the taxpayer must ask for permission from the Secretary following the [http://www.law.cornell.edu/uscode/search/display.html?terms=446&url=/uscode/html/uscode26/usc_sec_26_00000446----000-.html 446(e)] procedure.

If the taxpayer fails to request a change of method of accounting then according to [http://www.law.cornell.edu/uscode/search/display.html?terms=446&url=/uscode/html/uscode26/usc_sec_26_00000446----000-.html section 446(f)] the taxpayer does so at their own peril by exposure to penalties.

Comparison with other countries

In other countries, the profit for tax purposes is the accounting profit defined by GAAP (the "book profit"), with such additional adjustments to book profit as are prescribed by tax law. In other words, GAAP detemines the taxable profits except where a tax rule determines otherwise. Such adjustments typically include depreciation and expenses which for policy reasons are not deductible for tax purposes, such as entertaining costs and fines.

ee also

* Accounting
* Financial accounting
* Accounting period
* All-events test
* Corporate tax in the United States


Wikimedia Foundation. 2010.

Игры ⚽ Поможем сделать НИР

Look at other dictionaries:

  • Tax forms in the United States — are used by taxpayers and tax exempt organizations to report financial information to the Internal Revenue Service (IRS). They are used to report income and calculate taxes owed to the government of the United States. TOC Federal tax forms 990… …   Wikipedia

  • Taxation history of the United States — The history of taxation in the United States began when it was composed of colonies ruled by the British Empire, French Empire, and Spanish Empire. After independence from Europe the United States collected poll taxes, tariffs, and excise taxes.… …   Wikipedia

  • Corporate tax in the United States — Part of a series on Taxation Taxation in the United States …   Wikipedia

  • Sales taxes in the United States — are a tax added onto the price of goods or services that are purchased in the United States. A sales tax is a tax on consumption, which is displayed as a percentage of the sale price. Sales taxes are assessed by every state except Alaska,… …   Wikipedia

  • Retirement plans in the United States — A retirement plan is an arrangement to provide people with an income, possibly a pension, during retirement, when they are no longer earning a steady income from employment, or an asset from which a person may draw an income from as needed. There …   Wikipedia

  • Energy policy of the United States — The energy policy of the United States is determined by federal, state and local public entities in the United States, which address issues of energy production, distribution, and consumption, such as building codes and gas mileage standards.… …   Wikipedia

  • Partnership taxation in the United States — The rules governing partnership taxation, for purposes of the U.S. Federal income tax, are codified as Subchapter K of Chapter 1 of the U.S. Internal Revenue Code (Title 26 of the United States Code). Partnerships are flow through entities. Flow… …   Wikipedia

  • Taxation in the United States — is a complex system which may involve payment to at least four different levels of government and many methods of taxation. United States taxation includes local government, possibly including one or more of municipal, township, district and… …   Wikipedia

  • Monetary policy of the United States — Banking in the United States Monetary policy The Federal Reserve System Regulation Lending Credit card Deposit accounts Savings account Checking account Money market account Certificate of deposit …   Wikipedia

  • Illegal immigration to the United States — refers to the act of foreign nationals voluntarily resettling in the United States in violation of U.S. immigration and nationality law. Residing in the United States in violation of immigration law is not a crime but a civil infraction. [ Being… …   Wikipedia

Share the article and excerpts

Direct link
… Do a right-click on the link above
and select “Copy Link”