Accounting Essay Sample

Introduction

Taxes are the premiums paid for a civilized society. Taxes are viewed as the primary source government's revenue. Also, taxes are also used as a tool to influence people`s behavior by a government. Fees are always present in our daily lives for there are different kinds of taxes. They include exercise taxes; taxes levied on salaries, income, sales, and property. There are also federal excise taxes, state taxes on transfers at death, state and local excise taxes, general sales taxes, and severance taxes. People are affected by taxes when compelled to pay them thus creating a direct tax. This is the type of charge paid to the government by a citizen who pays the fee. Taxation is crucial to accounting and finance because corporate firms pay taxes to the government which in turn helps in delivering essential services to the citizens. Taxation in the United States is traced back in 1634 when the income tax act was enacted and was later adopted in 1861. The law has been reviewed various times, and other bills associated with taxation have then been formulated such as the revenue act. According to the constitution, the Congress is the body in charge of laying and collecting taxes (Hoffman, Raabe, Maloney, Young, and Nellen). According to the basic tax formula, a tax base is an amount to which taxes are being levied while tax rates are applied to tax bases in order to establish taxpayer`s liability.

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Taxes possess principles that govern them including the law of convenient payment, equity, economic in collection and certainty. Other policies that have been formulated are the principles expounding on fairness, minimum tax gap, simplicity, efficient tax administration, visibility and accountability to the taxpayers among others. After reforms were made in the United States, legislation developed flat taxes, value added taxes, national sales taxes, financial transaction taxes and carbon taxes. Taxes are administered through internal revenue services and the audit process. Tax legislation is developed to control the economy in the country, encourage various industries or specific activities, and promote small businesses.

Capital gains and capital losses are separated from other types of gains and losses when computing taxes. This is because they are subject to low rates in the taxation process. The short-term losses and gains and long-term gains and losses are grouped, and in most cases, they lead to lower tax liability. Taxes are reported using different procedures depending on the type of transactions in question. Capital gains and losses are documented differently. One of the critical aspects of taxation is tax planning. It is because tax planning helps establish the importance of capital asset status in a firm, as well as planning for capital asset status because the two affect transactions conducted by an organization other the sales made by a firm. Organizations have a responsibility of maximizing profits as it is the primary goal of every business entity. Taxpayers focus on year-end planning. There are various types of capital assets in a firm, and some are applied when taxes are levied while some are excluded. Taxpayers have the liberty of selecting their accounting periods and fiscal years with the use of their books of accounts (Hoffman, Raabe, Maloney, Young, and Nellen). In cases where a partner`s tax year and a partnership`s tax year differ, a deferral income to issue the tax. Every company is required to submit its tax payments at 15Th March every year. Public services corporations apply a calendar year to pay their taxes. The use of a calendar year selects a tax year or the time used to file returns by a taxpayer. IRS is the body mandated to evaluate business returns of companies and ensure that firms follow the stipulated rules and regulation when filing their returns. Permissible methods of taxation require taxpayers to establish taxable incomes by employing the procedures of accounting similar to the one in the books of accounts.

Conclusion

Accrual methods follow the tax regulations governing taxpayers who compute their incomes or deductions in all events test for income policy or all events and economic performances tests for deductions. Deferred compensation is necessary to taxpayers and companies as the government uses the funds collected in the taxes to take care of the citizens and firms when they no longer able to enjoy their former rate of productivity (Hoffman, Raabe, Maloney, Young, and Nellen). Compensation is the main reason why government creates retirement plans for those individuals employed by the state as well as enhancing programs for those in the private sector. Individual retirement accounts are easy to formulate and execute. They form the rules that govern the contributions of individuals such as the general rules. Also, arrangements should be made towards tax treatment to the employer and employee to develop tax plans that are convenient to both of them and the government. Corporations and partnerships are a form of business entities that also pay taxes. Depending on the structure of the business entity, tax rules apply differently to the entities as there are always legal concerns, revenue generation methods and the amount of revenue generated at the end of every tax year.

Reference

Hoffman, W. H., Raabe, W. A., Maloney, D. M., Young, J. C., & Nellen, A. (2018). South-Western Federal Taxation 2018: Individual Income Taxes. Cengage Learning.