A Major Conceptual Issue Regarding the Accounting for Income Taxes

question 40

Essay

A major conceptual issue regarding the accounting for income taxes is the recognition of income taxes as expenses.Some would argue that income taxes are not directly related to revenues or revenue-seeking functions and should not be considered as expenses.Some view income taxes as a distribution of income similar to dividends.This view would hold that income taxes,like dividends,are paid only if income is earned.Wages and supplies,on the other hand,are paid for whether the entity earns a profit or incurs a loss.
Identify arguments that can be made for recognizing income tax as an expense on the income statement.

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Definitions:

Starting Wage

The initial salary offered to an employee by an employer when they begin a new job.

Excise Taxes

Taxes imposed on specific goods, such as tobacco and alcohol, either as a fixed amount per unit or as a percentage of the price.

Regressive

Relating to a tax system that disproportionately impacts those with lower incomes, or to policies that may reverse political or social progress.

Regressive Tax

A tax imposed in such a way that the tax rate decreases as the taxable amount increases, disproportionately affecting lower-income individuals.