Accounting for Income Taxes
A skilled income tax provision approachASK AN ADVISOR
It is challenging, but important, to provide accurate accounting for income tax liabilities within financial statements. The Smith + Howard tax team has the technical tax and accounting acumen needed to apply the guidance of ASC 740 in a way that ensures the tax components of your business are reflected properly in your financial statements.
Our tax provision team will expertly and accurately calculate and convey your company’s income taxes in a financial reporting period and will work with management to ensure they have an understanding of the computations and results of the tax provision.
Income tax accounting requires a team approach. Advanced collaboration must take place between the client, an internal or external audit team, and tax accounting professionals.
The Smith + Howard tax team understands the tax and financial statement implications and the rules related to GAAP and other accounting standards. We offer a practical, tech-based approach that maximizes efficiency and works within time constraints that are typical in the tax provision process.
We dig deep, analyzing your business outcomes in a given period. Once we understand the big picture of things like acquisitions, tax structures, losses vs. income, new business lines, and more, we factor them in to deliver an accurate, thorough tax provision. We then take this process a step further and look for tax planning opportunities for the company.
When done effectively, accounting for income taxes can provide valuable information to management and the users of the financial statements while allowing companies to manage cash flow related to taxes.
Simply stated, current income taxes are the expected income taxes (federal, state and international) computed for the taxable year. Similar to preparing a tax return, this aspect of the tax provision involves calculating what your business expects to owe or has overpaid for the current year. This results in a balance sheet presentation of your estimated current tax liability or receivable. The current tax expense or credit is recorded on the income statement. This component of the tax provision is the one that can be reconciled to actual tax returns filed with the taxing authorities.
Income is calculated differently for tax purposes than it is for financial statement purposes. Items that make up these differences between the two that are temporary and will reverse in future years result in deferred taxes. Deferred taxes are reported on the balance sheet and reflect an estimated asset or liability that is expected to be recognized in the future. The change in deferred taxes is generally reported each year as an expense or credit along with the current tax provision on the income statement. Like current income taxes, deferred taxes must also be computed for federal, state, and international operations.
A company’s effective tax rate is the income tax expense that is recorded on its books, divided by pretax income. This is an important metric that shows whether you are paying more or less than the expected statutory tax rate. Items such as tax credits and tax-exempt income can reduce your effective tax rate while non-deductible expenses and certain prior period adjustments can increase your effective tax rate. A business’s effective tax rate should always be analyzed to identify what caused any increases or decreases from the expected statutory rate.
The final step in the tax provision process requires the proper presentation in your financial statements. This includes current and deferred income taxes on the income statement and balance sheet, disclosures related to cash payments and refunds in the statement of cash flows, and various disclosures related to the significant components of all income tax related items in the footnotes of the financial statements. Because many estimates must be made in preparing a tax provision, it is crucial that the financial statements adequately disclose a company’s income tax position, including any uncertain tax positions.
“In recent years, Smith + Howard has been invaluable in keeping us abreast of changes to the tax code and wider environment. They’ve guided us through complex issues we had no knowledge of, and time and time again, it’s proved to be invaluable for us.”Tom Nahigian, retired CFO of Abatement Technologies
“We use Smith + Howard for our audit, tax and special project work. Their advice and counsel is exceptional. Most recently, without Smith + Howard’s advice, we would have missed out on a $4M refund from a tax incentive program.”David Seem, CFO, Miller-Zell
“Their mindset is different. They’re constantly looking to see what our objectives are and they’re giving us the best possible advice and keeping up with all the rules and regulations. It’s like having an expert looking over your shoulder with what you’re doing.”Raj Anand, CEO, Southern States, LLC
Our dedicated tax provision team – the best and brightest in the field – oversees all accounting for income taxes. We use the most efficient methods available and coordinate with the tax and audit teams to streamline processes. Our clients have confidence in our ability to accurately and timely prepare tax provisions and we do it with genuine care for your business.
Our services include:
As a high-net-worth individual, you need a partner working as hard to protect and grow your wealth as you did to accumulate it – a partner who is on the same page as you about how your life, family and goals evolve over time and commits to preserving what you’ve built.
Our roots going back over half a century were grounded in tax. Today, while we can serve every aspect of your business’ financial life, we still stand on a strong tax foundation.
When consumers purchase goods and services, they pay indirect taxes.
At each step of the way, we will work with you to maintain compliance and minimize your taxes, while establishing a long-term relationship built on quality counsel and efficient, responsive service.