You and your friend Charles study accounting. Your friend states accounting tran
ID: 2458922 • Letter: Y
Question
You and your friend Charles study accounting. Your friend states accounting transactions and transaction taxes are similar. Do you agree? Why or why not?
Compare and contrast the primary purpose of the generally accepted accounting principles (GAAP) with the accounting principles of the U.S. Department of Treasury. Is it important to understand the difference to tax planners? Why or why not?
You get a good salary. However, a major part of your salary goes into tax. You are constantly exploring ways to lower your taxes. Your friend Charles suggested that you can lower your overall taxes simply by moving to another state.
Which states would you be considering? Why? What are the options available in your chosen state to lower your taxes?
Does this hold true for corporations? Why or why not?
Charles says that the IRS institutes statues of limitations just like criminal law. You tell him these statues apply only to the taxpayer, whereas criminal statutes of limitations apply to the government. Who is correct? Explain.
One day Charles comes to you for advice. He informs you he has just received a notice from the IRS saying a tax return he filed six year ago is being audited. He argues the statute of limitation has expired.
Can the IRS audit Charles's six-year-old tax return? Why or why not?
You and Charles visit a sports bar and overhear a discussion concerning the constitutionality of federal income taxes. One person says the constitution prohibits imposing federal income taxes.
Do you agree with this statement? Why or why not?
There was a time in America when people did not pay federal income taxes. What changed this situation?
Select the Best Tax Issue
Cindy, an accountant for a large accounting firm, works ten-hour days. As a requirement for her job, she must attend social events to recruit new clients. In addition to her job with the accounting firm, she also has provided for clients in her unincorporated professional practice. Cindy purchased exercise equipment for $5,000. She works out on the equipment to maintain her stamina and good healthy that enable her to carry such a heavy workload. What tax issues should Cindy consider? Explain.
Explanation / Answer
-You and your friend Charles study accounting. Your friend states accounting transactions and transaction taxes are similar. Do you agree? Why or why not?
Financial accounting is mostly known as accrual-based accounting. Under the accrual method, companies record sales revenues and purchase expenses when they are earned and incurred, regardless of whether cash from sales has been collected and cash for purchases has been paid
Tax accounting often is referred to as cash-based accounting, and thus focuses primarily on actual cash receipts and cash payments, rather than their related sale or purchase transactions. Companies don't record a sale or purchase transaction at the time of the transaction until cash is received or paid later
For example, When a company receives payment for a service or product, it is immediately taxable income in the view of the IRS. However, on a financial statement, the matching principle must be used under U.S. GAAP rules
-Compare and contrast the primary purpose of the generally accepted accounting principles (GAAP) with the accounting principles of the U.S. Department of Treasury. Is it important to understand the difference to tax planners? Why or why not?
Basic objectives to converge since Financial reporting should provide information that is:
· Useful to present to potential investors and creditors and other users in making rational investment, credit, and other financial decisions
· Helpful to present to potential investors and creditors and other users in assessing the amounts, timing, and uncertainty of prospective cash receipts about economic resources, the claims to those resources, and the changes in them
· Helpful for making financial decisions
· Helpful in making long-term decisions
· Helpful in improving the performance of the business
· Useful in maintaining records
At the conceptually level, GAAP is considered more of a "principles based" accounting standard in contrast to U.S. accounting principles which is considered more "rules based." By being more "principles based", GAAP, arguably, represents and captures the economics of a transaction better than U.S. accounting principles
Some of differences between the two accounting frameworks are below:
Intangibles
The treatment of acquired intangible assets helps illustrate why GAAP is considered more "principles based." Acquired intangible assets under U.S. accounting principles are recognized at fair value, while under GAAP, it is only recognized if the asset will have a future economic benefit and has measured reliability. Intangible assets are things like R&D and advertising costs.
Inventory Costs
Under GAAP, the last-in, first-out (LIFO) method for accounting for inventory costs is not allowed. Under U.S. accounting principles, either LIFO or first-in, first-out (FIFO) inventory estimates can be used. The move to a single method of inventory costing could lead to enhanced comparability between countries, and remove the need for analysts to adjust LIFO inventories in their comparison analysis.
-You get a good salary. However, a major part of your salary goes into tax. You are constantly exploring ways to lower your taxes. Your friend Charles suggested that you can lower your overall taxes simply by moving to another state.
Which states would you be considering? Why? What are the options available in your chosen state to lower your taxes?
Does this hold true for corporations? Why or why not?
Few states listed as follows in U.S. which provides tax efficiency
· Nevada - he state takes in a substantial amount of its revenue from gambling-related taxes and fees, so it doesn't need to burden its residents with income taxes or high property taxes
· Wyoming - Wyoming residents have an overall tax burden that's 30% lower than the national average
· Montana - the tax revenue the state brings in from natural resources allows it to have no state sales tax and one of the lowest vehicle taxes among states that have one
While individuals may be attracted by the potential tax savings from changing their residency to a state that does not impose a personal income tax, those individuals should be warned that achieving such a goal is not necessarily a simple task. In order to no longer be domiciled or resident in a state, an individual will have to sever most ties with that state. Even if an individual has taken affirmative steps towards establishing stronger connections in another state, there is a strong likelihood of significant resistance from the former state of residence, which will be reluctant to lose revenue.
Companies have relocated outside U.S., usually through mergers with or purchases of a foreign company. That move, known as a tax inversion, means corporations are no longer subject to American corporate taxes.It may reduce its tax burden by paying a large royalty for the right to use the company’s intellectual property to another subsidiary. More or less, corporate may need to pay tax .
-Charles says that the IRS institutes statues of limitations just like criminal law. You tell him these statues apply only to the taxpayer, whereas criminal statutes of limitations apply to the government. Who is correct? Explain.
One day Charles comes to you for advice. He informs you he has just received a notice from the IRS saying a tax return he filed six year ago is being audited. He argues the statute of limitation has expired.
Generally, the statute of limitations for the IRS to assess taxes on a taxpayer expires three (3) years from the due date of the return or the date on which it was filed, whichever is later.
An assessment occurs when an IRS officer signs a certificate of assessment stating the amount owed by the taxpayer. Additionally, the IRS statute of limitations gets extended for an even longer time when there is a substantial omission (more than 25 percent) of gross income on the return. In these circumstances, the time limit for the IRS to make its assessment gets stretched out to six (6) years from the date the return is filed or deemed filed, whichever is later.
Charles has been correct in the case where Statute of Limitations for Certain Criminal Prosecutions may happen due to
· missed or erroneous filings can actually constitute a crime, raising the prospect of criminal penalties for a filer .
· the offense of willfully failing to pay any tax or make any return at the time or times required by law or regulations
· the offense of willfully attempting to evade or defeat any tax or the payment thereof
-Can the IRS audit Charles's six-year-old tax return? Why or why not?
Answer mentioned above
You and Charles visit a sports bar and overhear a discussion concerning the constitutionality of federal income taxes. One person says the constitution prohibits imposing federal income taxes.
Do you agree with this statement? Why or why not?
The U.S. Constitution forbids the federal government to Impose any tax directly upon individuals. Individuals voluntarily Impose an Income tax upon themselves when the file an Income tax return
There was a time in America when people did not pay federal income taxes. What changed this situation?
Select the Best Tax Issue
-Cindy, an accountant for a large accounting firm, works ten-hour days. As a requirement for her job, she must attend social events to recruit new clients. In addition to her job with the accounting firm, she also has provided for clients in her unincorporated professional practice. Cindy purchased exercise equipment for $5,000. She works out on the equipment to maintain her stamina and good healthy that enable her to carry such a heavy workload. What tax issues should Cindy consider? Explain.
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