| Tax accounting is accounting for tax purposes. In | | | | initially). The other type of change is one in which |
| the United States, tax accounting is governed by | | | | you must get a letter of approval from the |
| the Internal Revenue Code (IRC). The basic rules | | | | Treasury secretary. |
| and regulations of tax accounting are dictated by | | | | Types |
| Section 446 of the IRC. The main principles of | | | | There are various types of tax-accounting |
| Section 446 in the IRC stress consistency in tax | | | | techniques. Section 446 in the IRC cites cash, |
| accounting, mentioning applied financial accounting | | | | accrual, various other methods and combinations |
| to come up with the appropriate method. | | | | of these methods as acceptable tax accounting |
| Taxpayers must determine their tax-accounting | | | | techniques. They must all be approved by the |
| technique by using their financial accounting | | | | Internal Revenue Service. |
| technique as a point of reference. | | | | Significance |
| Identification | | | | Some significant parts of tax accounts include |
| Tax accounting is very similar to traditional | | | | knowing how to formulate tax strategies, |
| accounting. In accounting, the system is designed | | | | understanding tax deferral, knowing when to |
| so that data that outsiders and managers can use | | | | expense terms, being able to prepare personal |
| for important decision-making is provided. The | | | | income tax statements, knowing how to treat |
| information that is provided is used for a lot of | | | | acquisitions or mergers, and much more. |
| different purposes, such as providing information | | | | Function |
| for company tax returns and creating operating | | | | Essentially, the functions of tax accounting are |
| documents. | | | | considering the consequences and implications of |
| Considerations | | | | each and every transaction inside of a company. |
| If a taxpayer is considering changing to a | | | | The transactions must be recorded strictly |
| different tax-accounting method, Section 446 | | | | according to the present IRS, state and local laws. |
| states that the taxpayer must seek the | | | | The basic tax-accounting functions include |
| permission of the secretary of the U.S. Treasury. | | | | amending, preparing and filing corporate and |
| There are two different types of changes. One | | | | required tax returns on local, state and federal |
| change is derived from a series of other common | | | | tiers. It involves various sectors including income, |
| changes, each of which comes about | | | | royalties, franchise and sales. |
| automatically (the taxpayer must fill out a form | | | | |