Tax evasion is illegal. One way that people try to evade paying taxes is by failing to report all or some of their income. ... In contrast, tax avoidance is perfectly legal.
The temporary difference in depreciation = $3,000 - $1,000 = $2,000
This means that Woody's pretax accounting income = $8,000 + $2,000 = $10,000
Sometimes accounting methods under GAAP vary with the way the IRS determines the taxable income, e.g. bonus depreciation or 179 expense election. That is the reason why temporary differences result.
Pre Tax financial income $500,000
Tax depreciation exceeding book depreciation ($45,000)
Accrued Expense for litigation ($15,000)
Taxable income $440,000
The computation of the pretax accounting income is shown below:
= Taxable income + (Amount of MACRS depreciation - amount of depreciation reported in the income statement)
= $8,000 + ($3,000 - $1,000)
= $8,000 + $2,000
Simply we take the difference of depreciation and the difference is added to the taxable income so that the pre tax accounting income is shown below
Option C $10,000
Taxable income is $8000 and the tax allowable depreciation (MACRS) is $3000. To arrive at accounting income we have to deduct Tax allowable depreciation from the taxable income and add the accounting depreciation which is $1000.
Accounting profit = Taxable Income + Tax allowable depreciation - Tax disallowed expense + Tax disallowed income
By putting values we have:
Accounting profit = $8000 + $3000 - $1000 = $10,000
Tax credits reduce the amount of income tax, a person owes to the federal and state governments. It is a type of tax incentive that is subtracted from the total tax he has to pay.
Tax deductions are certain deductions that a person can get in order to lower his tax liability. These deductions are in the form of expenses from the whole year, like insurance premiums or any form of charity etc. These expenses are subtracted from the gross income to get the amount of tax owed.
Taxes are generally placed on the citizens of a country, while tariffs are placed on imports from other countries.
The difference between tax revenue and non-tax revenue is that the former is charged on income earned by an entity, which is a direct tax and on the value of transaction of goods and services, which falls under indirect tax. On the other hand, non-tax revenue is charged against services provided by the government.