Word: taxed
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...overlooked aspects of President George W. Bush’s plan to provide dividend tax relief is the selective awarding of those benefits to shareholders of corporations that pay federal taxes. In other words, firms that report profits to capital markets but don’t report profits to tax authorities, an increasingly common outcome, wouldn’t share in the benefits. In the process, comparisons between the income reported to capital markets and tax authorities would become much more transparent...
While this proposal is laudable, Bush’s dividend tax plan opens the door to a more fundamental reconsideration of corporate reporting: Should corporations be allowed to report their income in two distinct ways to investors and to tax authorities? Several countries other than the U.S. enforce so-called “book-tax conformity” to varying degrees so that results are reported uniformly to these two audiences. Recent trends suggest that now is an opportune time for the U.S. to revisit the rules that allow firms to describe their economic activity in different ways to these...
...economic situation in two divergent ways that would serve your best interests. While guilt and shame and the possibility of detection might deter you, you might find yourself coming up with all kinds of curious rationalizations for why something is income (to the lender) or an expense (to the tax authorities...
...fact, you do not have this opportunity and for good reason. Your lender can rest assured that the 1040 they review in deciding whether you are credit-worthy would not overly inflate your earnings given your desire to minimize taxes. Similarly, tax authorities can rely on the use of the 1040 for other purposes to limit the degree of income understatement given your need for capital. In that sense, the uniformity with which you are forced to characterize your economic situation provides a natural limit on opportunistic behavior that serves the interests of prospective lenders and tax authorities. Indeed, given...
While individuals are not faced with this perplexing choice of how to characterize your income depending on the audience, corporations do find themselves in this curious situation. Dual books for accounting and tax purposes are standard in corporate America and, judging from recent analysis, are the province of much creative decision-making. Firms’ characterizations of income to investors and to tax authorities have increasingly diverged during the 1990s for reasons that we still don’t fully understand. While the overstatement and manipulation of accounting earnings by firms has come to light, there is growing concern over...