Tax Accounting

Posted in Finance, Accounting and Economics Terms, Total Reads: 484

Definition: Tax Accounting

Methods of accounting that emphasise on the taxes instead on the appearance of the financial statements in front of the public. All activities involving planning for future tax obligations & filing tax returns are included in this. Governed by an Internal Revenue Code, there are specific rules that firms have to follow when filing and preparing their tax returns.

Usually in alignment, there might be a difference in tax principles and the Generally Accepted Accounting Principles (GAAP). This difference is what is popularly called by analysts the difference between “book and tax.

For example, firms use First In First Out (FIFO) method of inventory costing to recover inventory for all financial purposes, but prefer to use Last In First Out (LIFO) when filing tax returns as this reduces the ongoing year’s taxes payable.

Special training and education is required to learn tax accounting and thus there are accountants who specialise on in this field.


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