Tax Accounting


U.S. tax accounting refers to accounting for tax purposes in the United States. Unlike most countries, the United States has a comprehensive set of accounting principles for tax purposes, prescribed by tax law, which are separate and distinct from Generally Accepted Accounting Principles.

Tax Accounting

What is ‘Tax Accounting’

Tax accounting consists of accounting methods that focus on taxes rather than the appearance of public financial statements. Tax accounting is governed by the Internal Revenue Code which dictates the specific rules that companies and individuals must follow when preparing their tax returns. Tax principles often differ from generally accepted accounting principles.

Explaining ‘Tax Accounting’

The purpose of accounting is to track funds associated with an individual or business.

Tax Accounting for an Individual

From the taxpayer sense, accounting would involve the tracking of all funds coming in and out of the persons’ possession regardless of the purpose, including personal expenses that have no tax implications. Tax accounting focuses solely on items such as income, qualifying deductions, investment gains or losses, and other transactions that affect the individual’s tax burden. This limits the amount of information that is necessary for an individual to manage an annual tax return, and while a tax accountant can be used by an individual, it is not a legal requirement.

Tax Accounting for a Business

From a business perspective, more information must be analyzed as part of the tax accounting process. While the company’s earnings, or incoming funds, must be tracked just as they are for the individual, there is an additional level of complexity regarding any outgoing funds directed towards certain business obligations. This can include funds directed towards specific business expenses as well as funds directed towards shareholders.

Tax Accounting for a Tax-Exempt Organization

Even in instances where an organization is tax-exempt, tax accounting is necessary. This is due to the fact that all organizations must file annual returns. They must provide information regarding any incoming funds, such as grants or donations, as well as how the funds are used during the organization’s operation. This helps ensure that the organization adheres to all laws and regulations governing the proper operation of a tax-exempt entity.

Further Reading

  • Public disclosure of corporate tax return information: Accounting, economics, and legal perspectives – [PDF]
  • Financial and tax accounting: transparency and “truth” – [PDF]
  • Comparing the publication process in accounting, economics, finance, management, marketing, psychology, and the natural sciences – [PDF]
  • Debt and the marginal tax rate – [PDF]
  • Empirical tax research in accounting: A discussion – [PDF]
  • Factors influencing a firm's accounting policy decisions when tax accounting and financial accounting coincide – [PDF]
  • The structure of corporate mergers: Accounting, tax, and form-of-payment choices. – [PDF]
  • Tax and corporate governance: an economic approach – [PDF]
  • The odd couple: A common future for financial and tax accounting – [PDF]
  • Tax reporting aggressiveness and its relation to aggressive financial reporting – [PDF]