Published On: Mon, Jan 8th, 2018

Tax Accounting- How This Can Be Beneficial For the Business Owners?

Most of the small businesses nowadays take the help of tax accounting service as this service helps the businesses with filing tax returns at the end of the year. Besides, most of the investors and banks accept this process of accounting while making things effective and acceptable for most of the small businesses. But this service doesn’t match with Generally Accepted Accounting Principles or GAAP. Rather, tax accounting mainly belongs to OCBOA or Other Comprehensive Basis of Accounting.

The best things about tax accounting:

Simplicity: Most of the companies now use GAAP and switch the numbers at the year-end to report and file the returns properly. But this process is actually complicated with the differences, which need to be tracked in detail for several years. Depreciation also varies between tax and GAAP, while creating two different sets of accounting calculations. Differences between these two methods prompt reconciliations, while enhancing the likelihood for accounting complexity and errors. By using account setup like as tax basis, it is possible to keep the financial situation more straightforward and simpler.

Familiarity: Most of the business owners know about income taxes as they generally review the returns with accountants and sign those on every year. Tax regulations are geared towards compliance and are published in regular language by using instances, which are really easy to understand. And to assist in understanding tax accounting, often webinars and workshops are arranged for the small business owners.

Costs: Most of the companies contact the professional accountants to prepare tax returns and financial statements. When the base of financial statements differs from taxes, more energy and time is spent in this method. This thing in turn produces higher fees. Often the businesses move to tax accounting basis while the changes needed by GAAP are really costly. This is the case with the small construction companies that use the percentage of completion method and also compute deferred taxes for complying with GAAP, an expensive and complex proposition.

Other benefits of tax accounting:

Apart from the above mentioned ones, there are some other benefits of tax based accounting. One of them is that by using this methodology, a business can actually spend less money to get the tax related benefits. Besides, this method also offers the small businesses a proper structure to organize their paperwork. It means, by following this method, the small businesses can use tax return as the visual aid.

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