What is Tax Accounting?

Tax accounting focuses on the preparation, analysis and presentation of tax returns and tax payments.

How Does Tax Accounting Work?

For example, Company XYZ might use one accounting method for calculating depreciation when it reports financial results to investors, but tax laws may require it to use a different method for tax accounting purposes. As a result, Company XYZ might have one net income number on the financial statements filed with the SEC and a different net income number filed with the IRS.

Why Does Tax Accounting Matter?

Although tax accounting largely follows generally accepted accounting principles (GAAP), in a few ways it is quite different. This is why you might hear analysts discussing the difference between 'book and tax,' meaning the differences between GAAP accounting and tax accounting. Tax accounting takes special training and education, which is why some accountants specialize only in taxes.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

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