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IRS and Tax Regulations

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Companies have to file tax returns that are in accordance with tax regulations and rules developed by the Internal Revenue Service (IRS). The amounts reported under taxable income and financial income differs. These amounts are different because financial income is based on Generally Accepted Accounting Principles (GAAP) which uses the accrual method to report revenues. Taxable income on the other hand, which is determined by rules and regulations of the IRS, follow a modified cash basis to determine revenue. Therefore, it can be seen that these amounts differ because of the differences between tax regulations and GAAP.
The majorities of financial advisers do not have a formal accounting or tax background and thus have some challenges to …show more content…

This is a liability because it is an obligation that will require future sacrifice.
Studying whether the concept of deferred taxes has an effect on future tax payments is not the most interesting of topics but it does give us useful information. It would appear that the timing and placement of the deferred taxes has different effects on future tax payments, but future tax payments cannot be deferred by an increase in the deferred tax balances. If the temporary differences are included before taxable income they are associated with future tax payments, however if they are included in income after taxable income they have no relevance on future tax payments. This would only be appropriate with reversing accounts, if they were permanent differences there would be no effect on future tax payments, Laux, R. C. (2013).
Income tax expense has two components the current tax expense and the deferred tax expense. According to Kieso et al. the current tax expense is the amount that is due in the current period and the deferred tax expense is the increase in the deferred tax liability balance from the beginning to the end of the period (2012). The income tax expense account can be used by management to manage earnings. According to Dhaliwal, Gleason, and Mills a firms use the tax expense as a cookie jar reserve to manage earnings. Firms with higher accruals are more likely to use the tax expense to manage earnings. Firms that use this technique to manage earnings

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