Your assumption are greatly over simplified. Taxable income per the corporate tax return, and financial statement income under generally accepted accounting principles are two different things. For example, a company may elect to report all the income from its sales of a product, at the time a contract is signed, using the accrual method of accounting, but elect to use the installment method of reporting sales for tax purposes, whereby sales are recognized as the purchaser of the product makes installment payments. Likewise, the corporation may elect to use straight line depreciation for financial statement purposes, but use accelerated depreciation, (eg double declining balance), or section 179 asset write off for income tax purposes.
If a corporation has a huge loss during a year, it can carry the lose back three years to recover taxes paid during prior years, (eg see form 1139). If the lose is not absorbed during the carryback period, the loss can be carried forward for 15 years. In the subsequent year the corporation has a nice profit, but pay no income tax per the financial statements, because a loss carry forward eliminate tax income during the year, so a corporation can have a nice profit but no income tax expense. It easier to pass on expenses that are more directly related to a product, like a component that become part of the finished good. This would be a direct cost of producing the product. Indirect cost must be passed on to the consumer as well, but taxes present some special situations. For example, the corporate income tax will never contribute or increase a corporate loss; since, no income tax is due unless there is taxable income of which the tax expense would be a certain percent. Likewise, the sales tax is not passed on the the consumer, even though the sales tax is a percent of each sale. Regards, LelandJ have sales taxed based on the installment methodare not the same.the before tax income reported on the Financial Statements are two different things. Charlie Coleman wrote: > I'll try 1 more time.... > > At 09:06 AM 9/25/2007 -0500, Leland F. Jackson, CPA wrote: > >>> You're looking at too small a part of the picture. Look at the bigger >>> picture in the real world and you'll understand what happens. If corporate >>> tax is raised, corporations will raise the price of their products. The >>> concept is it increase the percentage of their profit to offset the >>> additional percentage lost to higher taxes. >>> >>> >> The tax rate schedule for corporate taxation of net income before taxes >> is out of the control of a corporation, once set by congress. The >> corporation should strive to maximize profits before taxes. If income >> > ..... yada yada yada > > >> which in tern increases income tax, which in turn requires another >> additional raise in sales price ... which adjustment would go on forever >> > > No, it would not go on forever. You eventually arrive at a point where the > price raise increment would only increase the tax amount by 1 cent or so > and they'll usually accept that loss. > > The point is that corporations do not do things the way you're thinking. In > the real world, they are always trying to maximize profits, cut costs, etc. > When the gov rolls out a tax increase, pretty much all corporations have to > "immediately" (when feasible) raise their prices to make sure their > projected margins are maintained, etc. Of course there are a lot of other > considerations that factor in - e.g. if the prices were already so high > that raising them again would result in significant loss of market share > and so on. But the real key point you are missing is that companies look at > taxes as a type of "expense" (not in an accounting sense - in a real world, > "subtraction from profit" sense). > > Let me see if a simple example can help: > > Here in a local town, the son of a... oh... a-hem..... the politicians > decided to hike the local city corporate tax. I believe the bump was > something like 0.25%. Pretty much the day that tax went into effect, every > fast food restaurant bumped the prices of their products - in some cases > like 2% or more. I noticed the prices in stores rose as well - not sure of > percentage there, but I'm sure it more than compensated for the additional > tax amount. > > -Charlie > > > [excessive quoting removed by server] _______________________________________________ Post Messages to: [email protected] Subscription Maintenance: http://leafe.com/mailman/listinfo/profox OT-free version of this list: http://leafe.com/mailman/listinfo/profoxtech Searchable Archive: http://leafe.com/archives/search/profox This message: http://leafe.com/archives/byMID/profox/[EMAIL PROTECTED] ** All postings, unless explicitly stated otherwise, are the opinions of the author, and do not constitute legal or medical advice. This statement is added to the messages for those lawyers who are too stupid to see the obvious.
