Research Paper on Taxation: The Unavoidable Levy of Governments

Introduction

In modern economic systems, taxes are the main source of government revenues. They are obligatory imposes, and as a result, they are unrequited. Even though tax collection is presumably meant to enhance the welfare of taxpayers as a whole, a person's taxpayer's liability is independent of the benefits received (Lang et al., 2013). Taxation is the imposition of the unavoidable levies on entities or individuals by the government or any form of authority. Taxation is common in almost every nation across the globe; it is primarily done to raise proceeds for government expenditure, as well as other purposes. Corporate income taxation is one of the main forms of collecting revenues for planning processes. The calculation of the firm's operating earnings often involves deduction of expenses, including the costs of goods and services traded, as well as the depreciation from revenues. Tax rates are then used to generate a permissible obligation that the business owes the government. Guidelines on corporate taxation differ significantly across the globe; however, they ought to be voted upon and approved by the government before being enacted. Some of the major points to be covered in the paper include approaches to corporate taxation, advantages and disadvantages to corporate taxation, and types of corporate taxations. The purpose of this research paper is to elaborate on the corporate income taxes, integrating financial statement impacts and the accounting rule perspectives.

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Corporate Tax Deductions

Corporations or firms are always permitted to decrease taxable income by specific ordinary and necessary business expenditures. In most cases, the entire current expenses needed for the successful operation of a business are fully deductible (Lang et al., 2013). Also, real estate purchased and investments for the intent of creating income for the firm are deductible. In an attempt to comply with the corporate tax requirements, a corporation can deduct health benefits, employee salaries, bonuses, and tuition reimbursement. Besides, a firm can reduce the taxable income through deducting insurance premiums, bad debts, travel expenses, sales taxes, interest payments, excise taxes, and tuition, among other deductions. Also, taxing agencies may consider bookkeeping, legal services, preparation fees, as well as the advertising costs to tax business income.

Incorporate income taxes; when making deductions, there is always an issue of double taxation. Some corporations are taxed based on the taxable income of the entire company. If the above net income is distributed to the shareholders, these people may be forced to pay personal or individual income taxes on the dividends received. As an alternative, a corporation may decide to register as an S corporation and have all the income pass-through to the owners of the business (Abrams & Leatherman, 2019). In S corporations, there is always no payment of corporate tax as all taxes are paid through the individual tax returns.

Advantages of Corporate Taxations

Disbursing corporate taxes often become more beneficial for the business owners instead of paying additional individual income tax. In most cases, going by the policies set by the taxing agencies, corporate tax returns deduct medical coverage for families and other fringe benefits, including tax-deferred trusts and retirement plans. Usually, it is easier for a given corporation to deduct losses (Graham et al., 2012). For a corporation, the deductions may be applied to all the amount of losses, while a sole proprietor ought to provide pieces of evidence concerning the intent to learn a profit before all the losses can be deducted. Also, the profits earned by a corporation can be left within the corporation, a situation that may allow for tax planning and the potential future tax advantages.

In most countries, there is always an exemption of specific types of transactions or events from the income tax. For instance, events related to reorganization or formation of the corporations, which are sometimes perceived as capital costs, may be exempted from the process of taxation. Besides, numerous systems provide certain rules for the processes of taxation of an entity or its members upon the dissolution or winding up of the organization. In the financial arrangements where the financing costs are permissible to the tax base or tax deductions, regulations that differentiate between classes of member-provided financing may apply. In the above systems, the financial items categorized as interest may be considered in the deduction processes or even be subjected to limitations, whereas the items classified as dividends are not.

Approaches to Corporate Incomes Taxes

In some countries, there are the limitations of deductions based on the simple arithmetic formulas, including the debt-to-equity ratio, while in other systems, there is always adherence to the complex rules set by the taxing agencies (Lang et al., 2013). In some systems, there is the provision of mechanisms whereby groups of linked corporations can acquire benefits from credits, losses, or even from other items of all members within the groups. The mechanism may include consolidated or combined returns and group relief, which involves direct benefits from other members or items. In addition to the corporate income tax, many systems impose tax deductions on shareholders of the entities on the dividends. Only a few systems provide limited integration of member and entity taxation (Graham, Raedy & Shackelford, 2012). The above criterion may be achieved through franking credits or amputation systems. Previously, there have been mechanisms for the advanced remittance of the member tax by corporations with such contributions offsetting entity-level taxes.

Many taxing agencies enforce taxes on specific corporate attributes. The above systems are based on the non-income taxes, which are based on the capital authorized by the number of shares or values, including net capital, total equity, or other measures that are inimitable to the corporations. Just like other entities, corporations may become subjects to concealment of tax obligations after making specific varieties of payments to others. In most cases, these commitments are usually not the tax of the corporations; the system may sometimes impose penalties on the firm or its employees or officers for avoiding to withhold and pay over such taxes.

Types of Corporate Taxes

Employment Taxes

Corporations have often had numerous employees who must pay taxes. Employment taxes may include Medicare, social security, federal unemployment tax, and federal income tax withholding. Generally, organizations withhold from worker's wages Medicare, Social Security, as well as the federal income taxes, besides paying a portion themselves. In the United States of America, some of these taxes may be reported on Employer's Quarterly Federal Tax Returns, IRS Form 941, as well as the Employer's Annual Federal Tax Return (Graham, Raedy & Shackelford, 2012). On the other hand, the federal unemployment tax is not always withheld from the worker's wages. As an alternative, corporations often pay and report federal unemployment taxes independently through IRS Form 940.

Excise Taxes

A corporation or an organization may also become accountable to federal excise taxes. Generally, corporations remit excise taxes when they sell or manufacture specific products, use certain types of equipment, operate some forms of businesses, or receive or facilitate payments for some services rendered. Excise taxes are usually imposed on fuels such as gasoline, the use or sale of chemicals that deplete the Ozone layer, and transportation of property or a person by air. In the United States, corporations report excise taxes on IRS Form 720, which should always be filled quarterly (Graham, Raedy & Shackelford, 2012).

Estimated Taxes

Estimated taxes are calculated based on IRS Form 1120-W. However, corporations often have two major options for calculating their estimated taxes. They may calculate each installment payment as 25% of the income tax that the corporation will indicate on the return for the current or present year (Escribano, 2019). Also, the calculation can be made based on the income tax indicated on the corporation's return from the preceding year. There are always measures to control the calculations on the installments. For instance, if the corporations to remit installment payments of the estimated taxes, there may be an issuance of the underpayment fine. Besides, if a corporation makes overpayment on the estimated taxes, there is the opportunity to apply for a refund using IRS Form 4466 (Escribano, 2019).

Accounting Rules Perspective

Corporate Income Tax

In the current taxation systems, manipulation with corporate income taxes has increasingly become attractive, especially if the company makes profits in business at the end of a given fiscal year. The methods of determining the amount of corporate income taxes follow accounting procedures. In most cases, financial statements ought to be scrutinized to determine an accurate and elaborate taxation system (Abrams & Leatherman, 2019). In the processes of preparing the annual financial statements, as well as the application of the tax return form, it is always possible to apply a different tool to manipulate the tax bases. In the United States, some investors prefer the GAAP regulations that provide standardized financial and accounting policies; on the other hand, some organizations prefer international standards (Harris, 2013). The international adoption of the IASB standards will make the analysis and reading of the financial statements easier for the accounting and financial professionals. All the organizations do not apply the international accounting standards, but more and more investors continue to make it a priority.

When determining corporate income taxation, the financial operation of the business organizations may not be defined in the IFRS hence the need for the technical interpretation of the accounting expertise. The technical issues in accounting or the financial operation services may not be addressed at the domestic levels due to the lack of guidelines from the international operation processes (Baker, 2018). Examples of the technical transactional services are the acquisition of a business entity by another investor in a situation where the operators of the two entities remain with the same percentage share of the merged entity and the group restructuring.

Financial Statement Impact on Corporate Income Taxes

For most corporations, financial statements are used by the taxation agencies to determine the level and forms of taxation. In most cases, financial statements reveal the entire transactions made by a corporation. However, sometimes, there may be problems with the financial statements. The technical issues in accounting or the financial operation services may not be addressed at the domestic levels due to the lack of guidelines from the international operation processes (Abrams & Leatherman, 2019). Examples of the technical transactional services are the acquisition of a business entity by another investor in a situation where the operators of the two entities remain with the same percentage share of the merged entity and the group restructuring.

When the financial statements reveal high income, there is a high likelihood that the taxing agencies will impose more taxes. On the other hand, if the financial statements reveal low income, there is a high possibility that the organization will receive less taxation rate (Abrams & Leatherman, 2019). The financial statements may also be used to determine tax cuts by the government and the taxing...