Join Jim Stice for an in-depth discussion in this video Understanding income taxes, part of Finance for Non-Financial Managers.
- Even numbers people can be scared of income taxes. Taxes make us nervous because we're not sure we understand all the tax implications of our business decisions. It is of critical importance to engage a professional when in doubt. But with that said, an overview of the purpose of the income tax system can take some of the edge off. So what is an income tax? An income tax is a required payment to a government based on the amount of a person's income or a company's profit. Now that seems like such a simple statement, but there's so much controversy and intrigue right there in that simple statement.
For example, to what government? The government where I live? The government where I earn the money? Or the government of which I'm a citizen? So that needs to be decided in income tax accounting. Income taxes are based on what? Based on a straight percentage of taxable income? Based on an increasing percentage? That leads us to the next obvious question. What is taxable income? How is income or profit defined? Are there allowable expenses that can be subracted in the computation of that income? Now, income taxes are an important tax but not the only tax.
But computing our income taxes is what makes most of us especially nervous. Why? Because the income tax code, regulations, interpretations, and legislative history in the United States occupies 73,954 pages as of the end of 2013. So we will spend a little time talking about income tax terms and concepts. Now we don't all need to be tax experts, but we should all be familiar with basic income tax issues, tax brackets, tax rates, and the difference between tax deductions and tax credits, to name a few.
Again, our objective here is not to make you tax experts but to provide information to make you a more informed decision maker.
- Interpret financial reports and make decisions based on available data
- Manage inventory and receivables
- Create an accurate budget
- Cost a product or service
- Analyze customers
- Understand your income taxes
- Communicate your contribution to the bottom line