Monday, February 19, 2018

Three Differences Between Tax and Book Accounting that Legislators Need to Know

Seems like many more than just Legislators could use some brushing up here (e.g. see post directly below this one...).

While the differences between book and tax accounting are no doubt confusing to many, it is entirely reasonable that there be considerable differences between the two practices. After all, corporate accounting standards are typically set by the independent Financial Accounting Standards Board (FASB), while the Internal Revenue Code is a product of the political process between Congress and the While House.  Tax rules are driven by broader public policy concerns rather than adherence to formal accounting practices. T
So while Generally Accepted Accounting Principles[1] (GAAP) are intended to insure uniformity of companies’ financial statements and accounting methods, similar activities may be treated very differently for tax purposes.[2] Therefore, it is possible for the financial reports of a company to differ from the tax returns prepared for the IRS because of the different accounting methods.


Tom Hickey said...

This is one of the reasons that we have CPAs. Only experts have the time and ability to keep up on this, since tax law is in flux and differs according to jurisdiction, e.g., states and municipalities in the US.

In addition, interpretations have to be defended. I have a friend who is both a CPA and tax lawyer who does this. He usually wins.

Matt Franko said...

Your friend sounds competent Tom...