Unit 9
Unit 9
Unit 9
TAX ACCOUNTING
Overview
In this unit, students will be learned about tax accounting and the difference between
financial accounting and tax accounting.
Learning objectives
After this unit, students should be able to:
>> Understand the importance of tax accounting
>> Differentiate between tax accounting and financial accounting
2. READING
READING 1
1. Why has tax accounting become an important speciality throughout the world?
2. Why do most businessmen depend on tax accountants?
3. What does a tax accountant have to know?
4. What is a major concern of business?
5. How is tax planning made possible?
6. What are the three major forms of business organization?
7. How are the owners of individual proprietorships and partnerships taxed?
8. What is a progressive income tax rate? Give an example.
9. To what income tax are corporations and their owners subjects?
10. How can these result in double taxation?
READING 2
Reading text 2: Permanent differences in tax accounting and do exercise 2.2 below
PERMANENT DIFFERENCES IN TAX ACCOUNTING
In the U.S. and Britain, accounting methods for income tax and financial reporting
are independent of each other. This means that there can be large differences between the
profit recorded in the financial statements and the profit for the income tax calculation. The
difference in accounting for taxes between financial statements and tax returns creates a
permanent and temporary difference in tax expenses on the income statement.
A temporary difference eventually smoothes itself out over time, but permanent
differences won't ever be the same in terms of book versus tax. A permanent difference is
an accounting transaction that the company reports for book purposes but that it can't (and
never will be able to) report for tax purposes.
Permanent differences arise because GAAP allows reporting for a particular
transaction but the IRC (Internal Revenue Code) does not. As with temporary differences,
quite a few accounting events lead to a permanent difference.
Five common permanent differences are penalties and fines, meals and
entertainment, life insurance proceeds, interest on municipal bonds, and the special
dividends received deduction.
3. LISTENING
3.2 We've got a few minutes to ourselves. Could you just go over it again?
CEO:
How is the taxation (1) ………. calculated?
Accountant: OK. The operating profit (2) ………. our interest expenses gives us
the profit before tax (3) ………. This is the amount which theoretically is then
subject to taxation. In fact, the taxation amount is just an (4) ………., because we
won't know until much later exactly how much tax we'll have to pay.
CEO: What do we do with this estimate?
Accountant: In effect, we prepare an (5) ………. tax return. It won't be filed, just
kept by us to justify the taxation expense we include in the P&L.
CEO: Will this also be audited?
Accountant: Yes. And of course, the profit after tax is the figure which we can (6)
………. to shareholders.
CEO: What do we do when the taxable income differs from the profit before tax?
(7)
Accountant: We record what happens on the balance sheet. It’s either a net
………. tax asset or (8) ………..
1. How does the accountant calculate the profit before tax figure?
2. Why is the taxation amount only an estimate?
3. Do they file the interim tax return?
4.2 Complete the paragraph with the corret words from the box. You will
not use all the words
A tax advantage also exists for businesses that sell merchandise for personal use.
(1)
These …………… are often made on the installment basis, with payments spread over
a period of weeks, months, perhaps even years. For tax (2) ……………, it is permissible to
report the profit from sales during the years in which the actual payments are made rather
than during the year of the original sale. A tax (3) …………… is also available to the holders
of most depletive assets. The (4) …………… who owns assets of this kind is allowed a
deduction on the gross income derived from the asset. The (5) …………… is known as a
depletion allowance; because of the economic importance of many of the depletive assets,
the percentages allowed to the taxpayers are of great political concern. Some corporations
received such a tax advantage that despite substantial (6) ……………, they were paying
almost no (7) …………… In an effort to reduce the inequities created by this (8) ……………
tax treatment, the U.S. Government recently instituted an additional 15 percent tax on tax
preference.
4.4 Complete the following paragraph with the correct form of the word in
parentheses.
1…2…3…4…5…6…7…8…9…10…
While the small-business (1) …………… (CORPORATE) can save a great deal in
taxes by being taxed as a partnership, it keeps the other nontax advantages, such as limited
liability.
Other income-tax (2) …………… (ADVANTAGE) often encourage the corporate
form of organization. One of these is the possibility of selling the business or liquidating
it; that is, of going out of business and disposing of the assets. When this occurs, it is
possible to obtain long-term capital gains (3) …………… (TREAT). A long-term capital
1. The economic year is a period of twelve months arbitrarily chosen for tax purposes.
2. Accounting laws are a dozen or so concepts, conventions or doctrines generally
observed in accounting.
3. In a tax statement, you give information about what you earn every year.
4. Your tax credit is the total amount of income on which you do not have to pay tax.
5. A personnel allowance is an amount of money that you can earn before you are taxed.
6. In Britain, national welfare is a system in which the money collected is given to
people who are too old or ill to work.
7. In Britain and New Zealand, the Inland Office is the government office that
collects the main taxes.
8. Inheritance duty is paid from the money you have received from someone who
has died.
9. Direct tax is charged on goods and services rather than on the money that people earn.
10. Income duty is paid in relation to how much you earn.
5. SPEAKING
6. WRITING
1. You can claim your spouse as a dependent on your tax return if he or she doesn’t
earn an income.
………………………………………………………………………………………
……………………………………………………………………………………………...
2. Almost all individuals and organizations are required to compute their tax ability,
complete the necessary forms and pay the tax dues.
………………………………………………………………………………………
……………………………………………………………………………………………...
3. Tax accounting is the subsector of accounting that deals with the preparations of
tax returns and tax payments.
………………………………………………………………………………………
……………………………………………………………………………………………...
4. Tax accounting may result in the generation of a taxable income figure that
varies from the income figure reported on an entity's income statement.
………………………………………………………………………………………
……………………………………………………………………………………………...
5. A permanent difference will never be reversed, and as such, will only have an
impact in the period it occurs. A temporary difference, however, creates a more complex
effect on a company’s accounting.
1. Lập kế hoạch thuế cẩn thận nhằm giảm nghĩa vụ thuế xuống mức thấp nhất là
một trong các mối quan tâm lớn của các doanh nghiệp.
………………………………………………………………………………………
……………………………………………………………………………………………..
2. Hầu hết tất cả các cá nhân và doanh nghiệp đều phải có trách nhiệm nắm được
nghĩa vụ thuế của họ, hoàn thành các biểu mẫu cần thiết và thanh toán các khoản thuế đến hạn.
………………………………………………………………………………………