What Do Accounting Professionals Need to Know About Tax Accounting Rules?

As an aspiring accountant, taxes will play an important part in your work. You will need to know the rules that govern tax accounting and understand how to apply them.

The Internal Revenue Code

In the United States, Internal Revenue Code contains the accounting rules that relate to taxes of various kinds. The United States Congress writes and votes into legislature the tax laws that make up the Internal Revenue Code, and the Internal Revenue Service (IRS) enforces those laws.

For accounting professionals who handle any aspect of tax accounting, it’s essential to be familiar with the current tax accounting rules. Whether you specialize as a tax accountant and prepare tax returns and other documents on a regular basis or take on more of a big-picture advising and consulting role for clients, you will need to know the implications of tax rules. Only with a thorough understanding of the tax code can you help clients – business and individuals – make the right financial decisions for their particular situations.

How Much Knowledge Is Practical?

The Internal Revenue Code is a massive document. It contains millions of words and thousands – by some counts, tens of thousands – of pages. Even the IRS itself cites the complexity of the tax code as “the most serious problem facing taxpayers.” How could even the most experienced, conscientious accounting professional memorize all of the tax accounting rules?

The good news is that they don’t have to. Today’s accountants use computer technology, like software, for much of the work of tax accounting. They need to understand the principles of accounting and the bigger picture of tax accounting rules – what’s required to give accurate, helpful advice to individuals and organizations seeking help with financial planning and decision-making – more than they need to know the code for every form or the word-for-word laws. Knowing how to research and apply the laws is more important than memorizing the rules themselves, according to the Maryland Association of Certified Public Accountants.

Differences between Tax Accounting and Book Accounting

If you think of accounting as merely creating and maintaining financial documents, you might think that accounting for tax purposes is no different from regular bookkeeping. However, this isn’t always the case, according to Tax Foundation, an independent tax policy research organization. This is because the Financial Accounting Standards Board, not the federal government, establishes the Generally Accepted Accounting Principles that companies follow for bookkeeping purposes. Students need to learn both sets of standards, but more importantly, they need to know when and how to apply those rules and principles.

Some accountants dedicate much of their work time to preparing tax returns, and naturally need more in-depth knowledge of tax accounting rules than accounting professionals who are less involved in tax document preparation. However, every accountant needs a solid understanding of tax accountant rules to accurately guide clients on subjects like what expenses they can deduct and what financial decisions to make for the future.