For example a company may decide to purchase asset or reduce obligations out of its retained earnings. In most cases retained income does reflect the dividend policy of the company because the board will decide either to reinvest such profit or to pay them out to stockholders. The retained earning I taxable at corporate tax rate as well as pay as you earn (PAYE) on the shareholder share of profit if any. Recognized income This model is the basis of matching and accrual concept. These concepts both takes into account the accounting period in which expenses has been incurred or revenue has been recognized. According to the principle revenues are recognized when they are realizable that is usually by the time goods are transferred or services are rendered. Therefore it does not matter when cash is received. On the other hand expenses are matched to the period they relate to. Examples are: accrued revenue, and deferred revenue. Return of capital doctrine This doctrine protects some part of investment proceeds from taxation for instance if Mr. Y invested $20,000 there after sold the investment and realized $20,500 only $5,000 would be valid for taxation. The initial outlay is protected from tax. It can also be called capital gain; however it should not be mistaken with the return on capital which measures the rate of return. Constructive receipt Normally this concept is used to determine the gross income of cash basis tax-payer. Unlike actual receipt this concept does not require the physical ownership of goods which income relates (Murphy, K. & Higgins, 2011). Income is said to successively receive if the money are available to the taxpayer with no significant limitations For instance, if a taxpayer gets imbursement of some sort of pledges this will translate to tax timing reasons. Tax benefit rule This rule is highly based on how tax credit or tax liability a taxpayer is entitled to is when computing income tax. The deductions done in the preceding year are recovered in subsequent year and are reported as income in the year it is recovered in such a way that a tax benefit is recorded from such deduction. Under this rule the local or state tax refund may not be entirely taxable if the is a claim of unused tax credit. Wherewithal to pay doctrine The doctrine recognizes the period which the taxpayer has the capacity to pay his /her tax on the income earned. In this case the Review commission does not wait for the dispute to be solved before taxing the income (Cordes, J. 2005). Consequently the delay attracts the risk that the tax will become uncollectible in future. Atypical example; landlords normally require tenants to pay their in advance which is know as prepaid rent. Therefore the tax on such deposit is deferred because some time the rent may be returned to the tenant. Return of capital doctrine mostly favor the taxpayer whereas Wherewithal to pay doctrine is most beneficial to internal revenue service. Section 2 Itemized deductions are viable expenses which are required by individual taxpayer on their income tax returns in line to diminish their taxable income (Meldman, & Sideman, 2006). Itemized should go beyond the established average deduction before the taxpayer is given any benefit from such deductions. These deductions reflect on social policies by providing incitements such as paying huge medical bills. This come from those who have retired and have high income fro savings and pension fund. The other deduction is home mortgage interest which is provided to help in stimulating the
Professor Subject code Section 1 The concepts in the determination internal revenue Retained income Retained income is a figure used in business to calculate how much money generated or lost during the trading period of time…
He first reformed the tax code in year 1981 and later in the year 1986 (Fishman, 2012). Notably, President Reagan’s forms on taxation formed the largest tax cut that has the United States’ historic income tax cut. However, he was never the first or the last president of America to initiate reforms in the United States (Steuerle, 2008).
Corporation’s shareholders are taxed on dividends allocated by the corporation. Some corporations such as mutual funds are not taxed at the corporate level; in fact their shareholders are taxed on the corporation’s income. Domestic corporations are taxed at the state and federal level on their international income.
Please read the fact patterns carefully and respond to John Doe with answers to each of his questions. Individual One Based on some recent investment advice Joe T. decided to invest in stock through the New York Stock Exchange. He purchased 1,000 shares of common stock in IBM Corporation1 (this represents less than 1% of the outstanding voting power and value of IBM Corporation).
Over the last few years, the cost of services and goods offered by this company experienced a dramatic increase. In response, this company registered decline in sale because many customers were not able to afford the same. Peaceful Pastures Funeral Homes, Inc responded by designing its products to allow customers to prepay for the services and goods.
Therefore, meaning of ‘income’, ‘revenue’ and ‘profit (gain)’ in terms of IAS 18 is important in understanding the principle of revenue recognition. “Income is defined in the Framework for the Preparation and Presentation of Financial Statements as increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants.
They are deductible only when the assets are sold. If the tax payer acquires property, he shall not only capitalize the direct costs of such property but also add to the costs, costs of such acquisition. It also sates that "Any cost which (but for this subsection) could not be taken into account in computing taxable income for any taxable year shall not be treated as a cost described in this paragraph"( IRC 263A) The property can be both produced by the tax payer as well as acquired by him for resale.
In 1939 Congress codified the Federal tax laws" ("Tax Law and Accounting," 2009).
The aspect of modern income tax statutes that undeniably upset people the world over is that the tax law continually changes. Not only that, but it happens to be very complicated.
Though an individuals charitable deduction for any year is limited to 50%, 30%, or 20% of his adjusted gross income, depending on the property contributed and the donee but here, Hunter can get a deduction up to 10% of its taxable income because the
The key possessions are U.S. Virgin Islands, Guam and that of American Samoa. On the other hand, the key commonwealths of the United States are the Northern Mariana Islands as well as Puerto Rico. In the five major commonwealths and possessions, four of these are under a non-voting representative in the United States Congress.
The top-down approach of policy implementation clearly makes a distinction between policy formation process and its execution. The approach argues that setting up of policies is more of a political process than a technocratic process.
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