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The True Meaning of Income Tax Accounting

Income Tax Accounting can be defined as the management of income taxes using accounting which can be done only with the help of a good accountant.
A tax on income is one of the important items in the statement of profit and loss of an enterprise. Each company or an individual has to pay tax based on his income, for an individual it may not be necessary to know about accounting for filling his taxes however Income Tax Accounting knowledge could satisfy his curiosity.

Income Tax Accounting is important at organizational level and here we give a good piece of information. When it comes to the accounting of income taxes it becomes important for you to learn about Balance Sheet, Income Statement, Illustrations and much more.
Good knowledge of income tax accounting can help a lot in managing tax levied on the net profit.

In the Canada both the companies and individuals have the responsibility to give a share of financial contribution from their annual income earning. The government authority collects income taxes annually according to annual earnings. To educate you on several tax systems here we are describing three major groups which are regressive, progressive and proportional. Most of the nation prefer to progressive tax system to ensure accurate collection of income taxes. This system of gathering taxes is directly proportional to income tax report i.e. higher the tax rate higher the income.

The main driving force behind Income Tax Accounting is the understanding of the tax system and its calculation on their reports. In Canadian tax system in order to minimize tax burden government has offered many tax deductions which are subtracted from each individual’s total gross income. It’s always better if organization understands pros and cons of the tax deduction system just like there is a difference between house hold taxes and corporate taxes and both are calculated on different platforms of income tax accounting.

When it comes to income tax accounting it is important to understand some of the terms like Balance Sheet, Income Statement, Illustrations because on the basis of these we calculate income tax.
  • Balance sheet: The tax which gets deferred is calculated using the balance sheet, deferred tax asset is recognized after each period for the decrease in future income taxes payable in the Balance Sheet.
  • Income Statement: income tax expenses payable at each period may increase or decrease depending upon the changes taking place in deferred tax liability and the deferred tax asset.
  • Illustration: It is more over a calculation of income on which tax is levied this involves lots of mathematical calculation and formulae.