The main objective of the modern income tax statutes started with its first income tax statute and this is “very much a class tax intended to shift the balance of taxation to the wealthy class from the common worker who paid tariffs and excises” (Anderson). It was the objective of the legislators to formulate tax policies that would bear with it the spirit of distributing the wealth from the rich to the poor.
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This is by means of having a graduated income tax matrix that would take more from the wealthy through income taxes and would have to spread this out targeting those who are especially needy. This will be given to those who need it by means of social welfare services, infrastructure projects, and other special privileges. Likewise, it will provide for an organized and systematic means of collecting income taxes from people by providing clear lines between the amounts taxable and providing for special guidelines such as exemptions.
Some of its economic objectives is to “stimulate private investment, reduce unemployment, and mitigate the effects of inflation on the economy” (last name of author, year, page number)[a1] .
GAAP vs Tax Accounting
There are remarkable differences and similarities between the Generally Accepted Accounting Principles and tax accounting. Their differences between the GAAP and tax accounting lie on the aspect of accounting for bad debts. For the GAAP, the method that is used is that of the one referred to as the allowance method. Likewise, the use of direct write off is not possible for the GAAP as this is not allowed. On the other hand, direct write off may be used in tax accounting. Another difference would have to be that GAAP has in its scope financial accounting, which is a field that is different from tax accounting. Also, there are different requirements that the IRS does not with regard to the use of both.
An aspect where both can be considered to be the same is the utilization of the LIFO when one uses LIFO valuation and must be used in boththe financial statements and tax returns.
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Tax Avoidance and Tax Evasion
In general, tax avoidance is considered as the entities’ means of getting away with the obligation of paying taxes through legal means but kills the spirit or intent of the law (“Tax Avoidance,” 2005). There are certainlaws which provide for means by which certain companies would be free from the obligation of paying or reducing the taxable amount and some forms of these would have to be tax discount or tax holiday (“Tax Avoidance,” 2005). However, the abusive use of such power would lead to tax avoidance as the act would have to be considered as a means of letting the spirit of such forms to die (“Tax Avoidance,” 2005).
On the other hand, tax evasion is considered as totally avoiding the responsibility of paying the taxes which would be a violation of the law and an act that did not even let the spirit of the law live before killing it (“Tax Avoidance,” 2005). This deliberate act has heavier penalties and is considered a major violation of tax laws.
Last name of author, initial of first name. (year). Title of Book. Place of Publication: Publisher.
Anderson, D. The American income tax. Retrieved April 20, 2008, from http://www.simpleliberty.org/tait/riding_the_camel.htm.
Tax avoidance. Retrieved April 20, 2008, from http://www.cra-arc.gc.ca/agency/alert/avoiview-e.html.
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