In: Accounting
Tax is one the most common financial terms. taxes are one the primary sources of income for the goverment through which it fulfils the various projects and initatives.
Why Tax
Tax serves various purposes and is vital for the country's economic progress subsetance and development,Though the tax money is utalised for fulfilling various projects, its also the primary source of funding for several important govement Schemes.
Moreover we can say that tax also helps to reduce economic ineqaulity in the society through wealth redistribution,it helps goverment to built road highways hospitals and finance law inforcement and the judicial system
Types of Taxes
1.Direct Tax-these taxes are paid directly by the citizen to the goverment and cannot be remitted to others.
2.Indirect Tax-These taxes are collected by the producer or retailer from the supply chain and is paid to the government.
Common Book Tax Differences-
A.Depriciation and Amortisation-
This is most common difference that affects almost all businesses.For instance,In GAAP financial statement,fixed asster are depriciated using an acceptable method over asset's estimated useful life and for tax purpose fixed assets are depricated using accelerated method over prescribed lives by the IRS.In addition,The IRS allows for bonus deprication and section 179 deduction.which allows complete deduction in the year of purchase for new capital asset.therefore deprication on a tax basis is often greater than book in earlier year of life of asset.
B.Allowance for Doubtful Accounts- the expenses that you recognize when recording an allowance for accounts receivable that are doubtful of collection cant be deducted and these will be deducted once the receivable is written off against allowance.
C.Travel and Entertainment -These are another differences that are common for a lot of companies. Travel and entertainment costs are recognized fully as an expense for book purposes but have limitations on deductibility for tax purpose.
Temporary Differences vs.
Permanent Differences-please find in pictures attached
above.