41⟩ Tell me what is tax audit?
A tax audit is assessment of an organization's or individual's tax return by Internal Revenue Service (IRS) in order to find out that the income and deductions are recorded accurately.
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A tax audit is assessment of an organization's or individual's tax return by Internal Revenue Service (IRS) in order to find out that the income and deductions are recorded accurately.
The excess tax paid by an individual than the actual owed is returned by the government which is known as tax refund. After taking into consideration income tax, with holdings, tax deductions or credits and other factors, you file income tax for the year, after that you will receive a tax refund .
A long-term capital gain is the profit that arises with the sale of an asset that has been on hold for a definite period. This period ranges from one year to three years across different asset classes.
Capital gains means the profit earned from the sale of an asset. When the Capital Asset is being sold or transferred, the profit or gains arising out of it or you can term that as the difference between the actual price at which the asset was acquired and the price at which it is sold or transferred.
Long term capital gain is different from short term capital gains because short term capitals are kept for short period only that is less than a year.
The Alternative Minimum Tax (AMT) is a way to restrict wealthy taxpayers from tax evasion. AMT uses a separate set of rules to calculate taxable income after allowed deductions. This is generally for higher income group as AMT sets a limit on certain benefits that reduces a taxpayer's regular tax amount. As a result, if the benefits on tax reduce total tax below AMT limit, taxpayer has to pay the higher AMT amount.
A tax liability that a company has to pay but does not pay at that current point and it will be responsible for paying it in future is termed a deferred tax. Deferred tax occurs due to the difference in a company's balance sheet, due to the differences between accounting practices and tax regulations.
Working capital is the difference between a company's current assets and its current liabilities. Working Capital is used into day to day operations of any business.
There is a provision in country to get a refund for an over payment of taxes along with interest. When you have to claim a refund you need to file the income tax return within a specified period. You can even track your refund status from the NSDL-TIN website by clicking in Status of Tax refunds and can track your refund by entering PAN and Assessment year for which the refund is to be claimed.
When a firm has overpaid on taxes then the amount is recorded in the balance sheet as deferred asset tax which is also known as provision for future taxation. Deferred tax asset arises when the firm , pays taxes early or have paid excess of tax and is entitled to get some money back from the tax authorities.
The Streamlined Sales and Use Tax Agreement was introduced in 1999 by the National Governor's Association (NGA) and the National Conference of State Legislatures (NCSL) in order to simplify the collection of sales tax as sales tax is second largest source of state revenue after personal income taxes. It resulted in developing a simpler and business friendly sales tax system.
The Agreement decreases costs and administrative burdens of sales tax collection on retailers, especially those operating in multiple states.
Every year commonly controlled company prepares a combined or consolidated financial statement for tax and reporting purposes. Inter Company
Reconciliation is the process that helps parent company to split from its subsidiaries companies by location. Each year, commonly controlled business must prepare a combined or consolidated financial statement for tax and reporting purposes. The inter company accounting process is an important process for parent companies with subsidiaries or companies split by location. Inter Company Reconciliation helps in avoiding double counting of transactions as it also helps in maintaining accurate reports. Even it helps the companies to avoid misrepresentation of a firm's financial position.
A tax liability that a company owes and does not pay at that current point, although it will be responsible for paying it at some point in the future. Deferred tax liability (DTL) is a balance sheet item that accounts for the temporary difference between taxes that will come due in the future and taxes paid today.
When the assets of the company are written off over a number of years for the purpose of their replacement or renewal and not depending on the life of asset is termed as amortization. It is different from depreciation, which is periodic writing off of the asset based on its normal life expectancy.
Impairment can be termed as the fall in the value of the asset due to any physical damage to the asset, obsolescence or due to technological innovation. Impairments can be written off. Simply you can say that impairment is the difference between the fair value and the carrying value of an asset.
Securities Transaction Tax was introduced in India at time of 2004 budget and is applicable from 1 October 2004. Securities Transaction Tax is the tax which is payable on the amount of taxable securities transaction.
Securities Transaction Tax is just levied on purchase and sale of those securities that are listed on the Indian Stock Exchanges.
Securities Transaction Tax was introduced by the Finance Minister, to restrict people from evading tax on capital gains.
Permanent Account Number (PAN) is a ten digit alphanumeric number, which is issued by the Income Tax Department in the form of laminated card as PAN enables the department to link all kinds of transactions of the person with the department. Transactions include tax payments, TDS/TCS credits, returns of income/wealth/gift/FBT, specified transactions, correspondence, etc.
PAN helps the department in maintaining a fair record of every persons transactions through a ten digit number in order to avoid tax evasion in any case.
Deferred tax asset arises when the expenses are recorded in the income statement before they are required to be recognized by the taxing authority. Also when revenue is being taxed before it is taxable in the income statement.
Deferred tax liability arises from different depreciation methods being used for tax as depreciable assets are reported as non current.
Difference between Fund flow and Cash flow:
☛Fund flow is based on working capital. Cash flow is based on only one element of working capital that is cash.
☛ Fund flows tells about the various sources from where the funds are generated. Cash flow starts with the opening balance of cash and closes with the closing balance of cash.
☛ Fund flow is useful for understanding long term financial strategy. Cash flow is useful for understanding short term strategies that affects liquidity of the business.
Changes in current assets and current liabilities are shown through the schedule of changes in working capital.