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CFO Fundamentals: Your Quick Guide to Internal Controls, Financial Reporting, IFRS, Web 2.0, Cloud Computing, and More by ALLISON I. SHIM, JOEL G. SIEGEL, JAE K. SHIM

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CHAPTER THIRTY-FIVE

Tax Factors in Financial Decision Making

There are many taxing agencies, including federal, state, and local, to which your company pays tax. If your company is operating internationally, it has the additional problem of applying tax laws of foreign countries. Taxes may be levied on income, sales, and property. The federal corporate income tax (filed on Form 1120) is the most important because it often represents the largest tax liability. Thus, it can have a major effect on your financial decisions.

WHAT SHOULD YOU KNOW ABOUT TAXES?

To make sound financial and investment decisions, you must have an understanding of the basic concepts underlying the U.S. tax structure and how they affect your decisions. This section discusses first the general structure of the corporate income tax, such as taxable income, capital gains and losses, deductible expenses, operating loss carrybacks and carryforwards, tax rates, and tax prepayments and credits. Then it reviews various tax planning strategies to minimize your company’s income tax liability in the current year and postpone the payment of taxes to later years. The advantages of electing S corporation status also are discussed.

The general tax formula for corporations is:

A brief review of the various elements of this tax formula will provide a general understanding needed for effective tax planning.

GROSS INCOME

What ...

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