Tax Accounting For Your Business

In the United States, the method of accounting for finances in order to report taxes properly is called tax accounting. There are laws that govern taxes, and these laws provide principles to report taxes by in a very comprehensive manner. These principles are set apart from the typical principles put into place by the FASB called the Generally Accepted Accounting Principles (GAAP). Many countries outside of the US lack a thorough system for tax accounting.

When it comes to applying the rules of that, the Internal Revenue Code illustrates the rules necessary for those tax accounting procedures. Consistency in the application of these tax accounting principles is key and is outlined in section 446(a) of the Internal Revenue Code. The person responsible for paying taxes must use the proper method of it that applies to their method of accounting finances.

If it is discovered that the previous method used for accounting taxes is not the best method that a taxpayer should be using, a taxpayer can change the method of tax accounting by asking the Secretary of Treasury for consent. A taxpayer must have 2 consecutive years of filing tax returns under that method in order to change to another method or change back to the previous method used.

Some changes require an approval letter from the Secretary of Treasury while other changes require a simple form to be filled out and sent in to the Secretary of Treasury for automatic changes. The Internal Revenue Code that discusses changing the method of tax accounting as well as applicable procedures to complete that process is covered under section 446(e).

Penalties can be incurred if the proper method of that is not used or if requests to change the accounting method have not been done properly according to the correct Internal Revenue Code section, which is section 446(f). Avoiding penalties and fees is easy if guidelines are followed and the appropriate methods of changing these methods are frequently used.

Executive level pay is based upon company performance. If the performance of a company is not reported in a proper manner, executives make money that far exceeds what the business is capable of and creates a false picture of a company's performance. This false reporting causes the stock market to balloon by rewarding stock to companies who do not deserve it, and these methods have a bad effect on our economy. Business accounting that honor the GAAP (Generally Accepted Accounting Practices) creates a transparent persona, an air of trust and respect, from the users of their financial statements.