Tax accounting is one of the most important domains in the areas of finance. It is really important for companies to maintain a smooth running of their finances that they maintain sufficient knowledge about the various tax accounting methods that they can choose depending on the nature and size of their business. It is quite natural that companies that are run for profit are required to pay taxes to the government. There are several tax payment methods that can be used to reduce your taxes.
In general, taxes fall into two categories:
a) The cash lien method
b) The accrual tax method
It is the decision of the company or business that decides the tax accounting method to adopt and that is in accordance with the nature and size of its business. For example, if the business is a small business, to comply with federal tax authorities, it is always recommended that the owner choose the cash tax method of accounting.
The taxpayer can change the business tax accounting method used by the organization. In such a case, the taxpayer must have the consent of the Secretary of the Treasury.
The advantages of using tax accounting methods are:
1) The company shows good will when it comes to legal compliance
2) Helps in faster decision making by having a clear picture of the company’s finances.
3) It also helps to maintain a clear and precise budget that gives a correct idea of the company’s profits and losses.
4) It also helps in better record keeping by getting rid of unnecessary details and information.
Business tax accounting can go a long way in determining the future of the business. Well-maintained records can really go a long way for the business as they will always show a clear picture of where the business stands when it comes to finances. Also at tax time, a well-maintained record can go a long way in saving money when filing tax returns.
