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Accounting for Income Tax

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ACCOUNTING FOR INCOME TAX
Aylin Alishahi
University of Houston - Victoria
Abstract
The main idea of this paper is to introduce the concept of Accounting for Income Tax. As part of our discussion, we will understand the meaning of Income Tax and Tax Accounting. We will also look into the different terminologies of GAAP and IRS and the differences between the two. There are two basic kinds of differences between the two – temporary and permanent. In addition to looking at the basic kinds of differences, we will also look into Net Operating Losses. Examples have been provided for all the concepts to better understand the idea behind the concept. Although, this paper does not provide the detailed explanation, it will help us understand the overview of the whole theory.
Keywords: Income Tax, Tax Accounting, Accounting for Income Tax, Temporary Differences, Permanent Differences, Net Operating Losses.
ACCOUNTING FOR INCOME TAX
Income Tax and Tax Accounting
Income Tax is defines as “A tax that governments impose on financial income generated by all entities within their jurisdiction”. It is required by the law that businesses and individuals must file an income tax return every year to determine whether they owe any taxes or are eligible for a tax refund. Income tax is a key source of funds that the government uses to fund its activities and serve the public.
Tax Accounting is defined as “Accounting methods that focus on taxes rather than the appearance of public financial statements”. Tax accounting is ruled by the Internal Revenue Code which dictates the specific rules that companies and individuals must follow when preparing their tax returns. Tax principles often differ from Generally Accepted Accounting Principles.
Income tax is levied on both earned income and unearned income. There are basically two types if Income Tax – Personal Income Tax and Corporation…...

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