When Should A Change In Tax Law Be Accounted For?

When Should A Change In Tax Law Be Accounted For
Accounting for possible tax law changes As the U.S. Congress ponders possible significant tax law changes for corporate taxpayers, financial statement preparers already may be wondering about the related financial reporting implications. Tax law changes should not be reflected in the provision for income taxes for financial statement periods ending prior to the date of enactment of the law.

In accordance with Financial Accounting Standards Board Accounting Standards Codification (ASC) 740-10, the effect of a change in tax laws or rates should be recognized at the date of enactment. When deferred tax accounts are adjusted for the effect of a change in tax laws or rates, the effect should be included in income from continuing operations for the period that includes the enactment date.

Companies that anticipate benefits related to prior periods or a change in deferred taxes as a result of the tax law changes should record these effects as a discrete item in the period of enactment. For interim tax provisions, there has been diversity in practice regarding in which interim period the effect of a change in tax law (or change in rates) should be recognized.

Before adoption of FASB Accounting Standards Update (ASU) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, some believed ASC 740-270 required that the effect on taxes payable or refundable for the current year should be recognized in the period of enactment, which is similar to the treatment given deferred taxes.

Others believed that ASC 740-270 required an entity to wait to recognize the current effects on taxes payable or refundable until the interim period that included the effective date of the change. For example, if a law change that increased the income tax rate was enacted on the first day of a company’s fiscal year but was not effective until the entity’s third quarter, the estimated annual effective tax rate (AETR) for the first two quarters would have used the lower (pre-tax-law-change) tax rate without any consideration given to the change in tax law.

The higher tax rate would then be incorporated into the AETR in the third quarter, when the law became effective.
ASU 2019-12 clarifies that all tax effects, both deferred and current, arising from changes in tax laws or rates should be accounted for in the first interim period that includes the enactment date of the new legislation.

ASC 740-10-65-8 addresses the effective date and transition requirements of ASU 2019-12. The tax effect of a change in tax laws or rates on taxes payable or refundable for a prior year should be recognized as of the enactment date of the change as tax expense (benefit) for the current year.

When should a deferred tax asset be Recognised?

(a) a deferred tax asset is recognised for the carry forward of unused tax losses to the extent of the existing taxable temporary differences, of an appropriate type, that reverse in an appropriate period.

How do I keep up with new tax laws?

How to Stay Up-To-Date With Tax Laws Every year, tax laws goes through a fluctuation of change. Whether they’re being altered, added, or removed, tax laws are a complexity that every accounting firm needs to stay on top of in order to keep their clients’ businesses up-to-date and compliant.

However, there’s no doubt that the complexity of tax laws can become overwhelming—especially as firms enter busy season.
With so many different areas that cover income, corporate, excise, luxury, estate, and property taxes (just to name a few), it’s imperative that firms know the legal rules and procedures governing how federal, state, and local governments calculate the taxes their clients owe.

To ensure that your firm and staff are knowledgeable about the latest tax law changes, here are a few ways to stay-in-the-know not just for busy season, but all year round. Go to the Source Although congress is the one that passes tax laws, it’s the Internal Revenue Service (IRS) that actually enforces these laws across businesses and organizations.

Thankfully, the IRS normally always provides a good summarization of tax law changes that have gone into effect, along with a comprehensive list of all related topics.
They also provide plenty of resources and tools for tax professionals.
Check in with your state State governments also regularly alter their tax laws to address varying issues that affect small, medium, or large businesses.

There can also be updates on forms and other areas of legislation. Track these changes by checking in with your state’s Tax and Accounting boards for in-depth summaries and general information. Subscribe to the AICPA The AICPA (American Institute of CPAs) obviously takes standards and accounting changes very seriously.

Make sure your firm and your staff are subscribed to the AICPA’s newsletters that breakdown tax law changes whenever they go into effect and also when/what to expect when they do. Update your tax software annually Many tax software have new editions that come out yearly which incorporate changes to federal and state tax codes.

This way you’re not scrambling to manually input the changes yourself, and there will be less confusion as to which areas need to be updated or not. Log in your CPE hours Typically, CPAs take a minimum of 40 hours’ worth of continuing professional education each year.

This requirement to maintain the CPA license is imperative for reasons such as this topic now: staying up-to-date with the ever changing landscape of tax laws, which must alter to adjust to the economic and social indication of the times.
Make sure that your staff is complying with this requirement and check in to see which classes they are taking relevant to tax and accounting services.

It’s up to CPAs and the firm to push them to study and understand new tax laws. Hold frequent training sessions or group meetings To make sure that everyone on your firm is on the same page, you can set up meetings or training sessions every few months or so to discuss any tax laws or regulation changes that have occurred.

This can be helpful for those of your staff who may have questions to help further understand the changes and you can also all brainstorm on different ways you can let your clients know how it will affect them to avoid penalties or fees come tax season. Be the resource; not the middle man Although it is your job to help your clients file their taxes during Busy Season, it’s also equally important for your clients to know what tax law changes have gone into effect and how it will affect their businesses.

They’re depending on you to be tax experts and professionals. They’re relying on you to effectively provide tax and accounting services and to be current on the ever changing laws and regulations, be it at the state or Federal level. With that being said, it’s extremely important that all staff members know exactly what’s going on and can relate that information to clients in a way that transitions the changes seamlessly.

Therefore, you want your firm to be the resource of tax laws and changes; not the middle man.
You should be knowledgeable and ready to answer any questions your clients have regarding these tax changes rather than taking down their questions and going elsewhere to find out the answers and getting back to them later.

This will continue to give your firm a reputation of competence and proficiency in the industry and profession. : How to Stay Up-To-Date With Tax Laws

When may tax rates other than the current tax rate be used to calculate the deferred income tax amount on the balance sheet?

Tax rates other than the current tax rate may be used to calculate the deferred income tax amount on the balance sheet if the future tax rates have been enacted into law. A net operating loss: 1.

Which conditions must be present for the recognition of an asset?

Recognition of assets 89 An asset is recognised in the balance sheet when it is probable that the future economic benefits will flow to the entity and the asset has a cost or value that can be measured reliably.

Why would a deferred tax asset not be realized?

This website uses cookies to learn how visitors interact with our website so that we can improve our services and your online experience. By using this website, you agree to our privacy policy, April 22, 2010 By Raymond Kelly, Partner – Tax & Business Services & When Should A Change In Tax Law Be Accounted For The past couple of years certainly have been challenging from a business perspective for companies in most sectors of the economy. Many companies which historically were profitable have experienced losses over the past 18 to 24 months. With the economy forecasted to be just at the beginning of a slow recovery, it would appear that the return to profitability for many companies may not occur in the near term.

This has resulted in auditors asking questions regarding the recoverability of deferred tax assets that have been recorded on companies’ financial statements.
The evaluation of the recoverability of deferred tax assets is nothing new.
Management has always had the responsibility to evaluate the recoverability of the deferred tax assets when issuing financial statements, but the current economic environment has made the evaluation process much more challenging.

Auditors have been requiring companies to take a careful look at their deferred tax assets to determine whether a valuation allowance is warranted, especially if the company in question has suffered losses during the past couple of years. Additionally, if a certain level of losses have occurred there is a presumption that the deferred tax asset that has been recorded should be reduced by a valuation allowance.

Deferred tax assets are recognized for deductible temporary differences, operating losses and tax credit carryforwards.
There also must be a determination by the company that there will be sufficient future taxable income to realize the related tax benefits that will reduce taxes that would otherwise be payable.

A valuation allowance is required for deferred tax assets, if based on available evidence, it is more likely than not that that all or some portion of the asset will not be realized due to the inability to generate sufficient taxable income in the future.

Management needs to consider all positive and negative evidence when determining how much of a valuation allowance to recognize.
A valuation allowance must be recognized when it is more likely than not that all or a portion of the deferred tax asset will not be realized.
Changes in the valuation allowance caused by changes in circumstances that result in a change in judgment about the realizability of deferred tax assets are included as part of a company’s tax provision and generally reflected in income from continuing operations.

In order for companies not to establish or increase a valuation allowance that reduces their deferred tax assets, they need to evaluate the sources of taxable income that could be generated in sufficient amounts to realize the related benefits. There are four possible sources of taxable income that may be available to realize the benefit of deferred tax assets.

Taxable Income in the Carryback Years if Permitted by Current Tax Law. Deferred tax assets are realizable if the future deductible amounts would, under the existing provisions of the tax law, result in future tax losses that can be carried back to recover taxes paid for the current year or prior years within the carryback period. Future Reversals of Existing Taxable Temporary Differences. Deferred tax assets are realizable if the future deductible amounts would reduce, under existing provisions of the current tax law, taxes that would be paid on future taxable income generated by existing taxable temporary differences. Tax Planning Strategies. Tax planning strategies may be available to accelerate or delay taxable income or deductions, change the character of taxable income or deductions, or switch from tax exempt to taxable investments so there would be sufficient taxable income of the appropriate character and in the appropriate periods to allow for the realization of the tax benefits of deductible temporary differences or carryforwards. Tax planning strategies are actions that an enterprise might take, but would likely only do so in order to realize the tax benefits. Future Taxable Income Exclusive of Reversing Temporary Differences and Carryforwards. Deferred tax assets are realizable against projected future taxable income.

In summary, the evaluation of deferred tax assets has probably not been an area of concern in the past, but with the economic events during the past couple of years and the economic environment that is expected, this could be a problem area for many companies in various industries. Be in the Know Get all the latest insights from Marcum. Subscribe

Are tax laws constantly changing?

Changes on the Horizon – Tax law changes every year, and some years more than others. It’s impossible to accurately predict what will change from year to year, but it is possible to predict periods when there could be dramatic changes. This year, or the next year or two, could see dramatic changes to tax laws as a result of shifts in the political landscape.

Leadership in the White House and Congress has been waiting years to enact major changes and now, potentially, has the political clout to do it. While we have seen hints of what changes could be on the horizon, we don’t yet have a clear picture of what they may be, although it’s a fair bet that the changes could be significant.

Meanwhile, plenty of changes are already going into effect just in the usual course of business, including changes to filing deadlines, expense deductions and partnership audit rules. For example, small- to medium-sized business (SMB) leaders subject to the alternative minimum tax (AMT) rule can now offset the AMT with tax credits for research and development.

Organizations, particularly in construction, software, manufacturing, wine, aerospace subcontracting, boat building and biotech, can qualify for this credit if they have engineers, scientists or product development personnel on staff.
Other qualifications include software that is innovative and can be commercially sold.

— Entrepreneur

Are tax laws changing for 2022?

‘ Here are must-know tax changes for 2022. After another year of tax law changes, there are significant updates for the 2022 filing season, with the possibility of a smaller refund or bigger tax bill. For some filers, certain tax credits have been reduced and it may be more difficult to claim the charitable deduction.

When should a company recognize the effects of changes in tax laws on deferred tax balances?

On the first occasion that the taxes on income are accounted for in accordance with this Standard, the enterprise should recognise, in the financial statements, the deferred tax balance that has accumulated prior to the adoption of this Standard as deferred tax asset/liability with a corresponding credit/charge to the

When a phased in change in tax rates is scheduled to occur?

When a phased-in change in rates is scheduled to occur, the specific tax rates of each future year are multiplied by the amounts reversing in each of those years. The total is the deferred tax liability or asset. A deferred tax liability (or asset) is based on enacted tax rates and laws.

How do you calculate deferred tax when tax changes?

How Deferred Tax Liability Works – The deferred tax liability on a company balance sheet represents a future tax payment that the company is obligated to pay in the future. It is calculated as the company’s anticipated tax rate times the difference between its taxable income and accounting earnings before taxes.

Deferred tax liability is the amount of taxes a company has “underpaid” which will be made up in the future.
This doesn’t mean that the company hasn’t fulfilled its tax obligations.
Rather it recognizes a payment that is not yet due.
For example, a company that earned net income for the year knows it will have to pay corporate income taxes.

Because the tax liability applies to the current year, it must reflect an expense for the same period. But the tax will not actually be paid until the next calendar year. In order to rectify the accrual/cash timing difference, tax is recorded as a deferred tax liability.

What are the four criteria for revenue recognition?

Revenue Recognition: Criteria and Why It’s So Important Today’s financial world puts a great emphasis on meeting targets. From the perspective of those who run businesses and their employees, it can mean the difference between a large bonus or being let go.

From a stockholder’s perspective, it could mean the difference between selling or holding a stake in a company. The most common measure used to gauge whether one has met targets is revenue. Revenue typically drives the success of most businesses, as it is a means of generating profits and increasing equity.

For this reason, attaining proper revenue recognition is paramount. Revenue recognition in some instances can be simple. Consider a manufacturer that sells a non-warranty product to a customer. In this instance, revenue is recognized when all four of the traditional revenue recognition criteria are met: (1) the price can be determined, (2) collection is probable, (3) there is persuasive evidence of an arrangement, and (4) delivery has occurred.

Revenue recognition gets complicated when the above criteria do not apply, which is typically due to the type of industry that companies operate in. For instance, some of the more complicated industries include technology, real estate, media and entertainment, construction and healthcare. Revenue in these industries is typically contract driven and determined on a customer-by-customer basis, and even a contract-by-contract basis.

In particular, revenue from contract accounting could be subject to the revenue recognition criteria of multiple deliverable arrangements. Under this set of criteria, revenue may not be recognized over the life of a contract in a systematic way; rather, contract revenue could be broken up into segments and recognized when certain milestones or deliverables are achieved.

In the technology and software industries, for example, revenue is recognized when certain segments of a contract are completed. The most complicated part of revenue recognition for these industries is the valuing of contract segments, which are not always broken out in the contracts themselves and often do not follow the operational substance of the contract.

Revenue recognition in the real estate industry carries its own complications. Each transaction involving the sale of real estate is unique, and contrary to popular belief, recognition of a sale does not necessarily coincide with the legal transaction itself.

These are just a few of the nuances related to industries with unique revenue recognition models.
Given the need for guidance and clarification on existing and new revenue models, the Financial Accounting Standards Board (FASB) developed numerous industry-specific standards for revenue recognition.
However, these standards are extremely detailed and have led to inconsistent treatment of similar types of transactions across industries.

In addition, companies in their infancy can be overwhelmed by the various iterations of revenue recognition throughout the accounting standards, particularly when they do not fit into the cookie-cutter, industry-specific guideline categories. Revenue Recognition – The Future! It’s been 10 years in the making! In May 2014, the FASB issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606),

This update was done in step with the International Accounting Standards Board (IASB) and seeks to clarify the principles for recognizing revenue and develop a common revenue standard for accounting principles generally accepted in the United States of America (US GAAP) and International Financial Reporting Standards (IFRS).

Why did the FASB issue the accounting standards update? The update was a response to the increasing concern in the financial industry related to inconsistencies across companies and industries regarding revenue recognition. There was also a need to clarify the differences in the US GAAP and IFRS standards, particularly where investors have the need to compare companies’ financial performance across the world.

The new standard will eliminate many of the inconsistencies brought on by the industry-specific guidance, specifically with respect to revenue generated from contracts with customers. It will serve as a uniform standard that will supersede most of the previously issued guidance and provide a framework that all industries can follow.

The main premise of the guidance is that companies will recognize revenue upon the transfer of goods or services to customers in amounts that reflect consideration for those goods or services. Companies will now have specific principles and steps to follow to determine proper revenue recognition.

In addition, expanded disclosure requirements for US GAAP financial statements will add transparency to financial reporting.
What does this mean for your company? Most companies will be impacted by the new standard in some fashion.
Your company may now have expanded disclosure requirements or need to change its processes, controls, tracking systems and/or technology used to account for revenue recognition.

It is hard to say what the changes will mean for your company until you apply the new accounting standard to your company’s specific circumstances. In some cases, the new standards will change the timing of when revenue is recognized – such as when there are contracts with bundled equipment and services, long-term contracts or customer incentives, or when there is licensing of intellectual property,

The new standard will likely change the way many companies recognize and analyze revenue. Revenue Recognition – What Is Next? If you are asking yourself “What is next?” or “Where do I begin?” you’re not alone. The first step is to determine what the impact of the changes to the standard will be compared with how you currently recognize revenue.

These changes could influence more than just revenue recognition for your business. With that in mind, you will want to consider business implications such as income tax planning, compensation plans and debt arrangements, all of which could be affected by changes in the timing of revenue recognition.

Marcum Assurance Services Marcum Industry Guide IASB and FASB Issue Converged Standard on Revenue Recognition FASB and IASB Announce the Formation of the Joint Transition Resource Group for Revenue Recognition FASB Revenue Recognition 3 Part Video Series

About the Authors Ted Lucas, CPA, is a senior manager in the Assurance Services division of Marcum LLP’ s Hartford office. He has more than 14 years of experience conducting and performing assurance engagements for publicly traded and privately held companies in various industries. You can contact Ted at [email protected], Timothy J. Landry, CPA, is a senior manager in the Assurance Services division of Marcum LLP’ s Hartford office. He has 13 years of experience conducting, reviewing and analyzing financial information for companies that span a variety of industries. You can contact Timothy at [email protected], Link to PDF

What are the two conditions that must be present for the recognition of an intangible asset?

An intangible asset shall be recognised if, and only if: (a) it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity ; and (b) the cost of the asset can be measured reliably.

What is the accounting entry for deferred tax?

First time introduction of Deferred Tax in Books of accounts. – ( Transitional Provisions) As per AS 22 “On the first occasion that the taxes on income are accounted for in accordance with this Standard, the enterprise should recognise, in the financial statements, the deferred tax balance that has accumulated prior to the adoption of this Standard as deferred tax asset/liability with a corresponding credit/charge to the revenue reserves, subject to the consideration of prudence in case of deferred tax assets (see paragraphs 15-18).

The amount so credited/charged to the revenue reserves should be the same as that which would have resulted if this Standard had been in effect from the beginning.” To introduce deferred tax first time in the books, we have to find Difference between the Value of Assets as per Books of Accounts and the Value of Assets as per Income Tax Act.

To simplify if we have fixed assets in the books as gross block Rs.250 lacs and accumulated depreciation Rs.150 lacs, the net value in the books is Rs.100 lacs. Suppose, the net block value as per Income Tax calculation (as per tax audit) Rs.80 lacs. It means that in future we shall calculate depreciation on Rs.100 lacs whereas as per Income Tax Act, the depreciation will be calculated on Rs.80 lacs.

This will result in less allowable depreciation creating more tax liability in future.
Therefore, we have to create Deferred Tax liability for this future Tax liability.
The timing difference is Rs.20 lacs on which we have to create Deferred Tax Liability of Rs.6 lacs at the assumed I.tax rate of 30%.

In the same way we have to introduce for all differentiating assets and liabilities. Suppose, a firm has the following positions as on 31 st March,

Asset / Liability	as per books	as per I.tax.	difference	DTL (+) DTA (-) @ 30%

Assets :
Net fixed assets-written down value. ( In future more tax has to be paid on less allowable depreciation as per tax law)	100.00	80.00	20.00	6.00

Liabilities:
Provision for gratuity (when paid in future it will reduce tax at that time)	40.00	0.00	-40.00	-12.00
Provision for staff leave encashment (when paid in future it will reduce tax at that time)	30.00	0.00	-30.00	-9.00

Total			-50.00	-15.00

The entry to be passed in books for Rs.15.00 lacs DTA newly introduced.

Deferred Tax Asset A/C DR 1500000/-
To Revenue Reserve A/C 1500000/-
ANNUAL CALCULATION

It may be noted that we don’t have to calculate deferred tax on each and every transactions related to it. The Deferred Tax is calculated annually from comparison of book profit and taxable profit. The Deferred Tax Liability or Deferred Tax Asset is derived from the comparison of Profit & Loss A/c of Balance sheet and Computation of Total Income for Income Tax purpose.

If any amount is expensed out in Profit & Loss A/c but not deducted for Income tax purpose, it will create Deferred Tax Asset.
If any amount claimed in Income Tax is more than expensed out in Profit & Loss A/c, it will create Deferred Tax Liability.
The net difference of DTA / DTL is computed and transferred to Profit & Loss A/c.

The Balance of Deferred Tax Liability / Asset is reflected in Balance sheet. For that the following simple statement may be used. For the above example, Suppose in next year, the firm makes payments from provision and makes new provisions from P/L A/c.

Details	P/L A/c	Computation of Income	difference	DTL(+) / DTA(-) @ 30%
Opening balance of DTL(+) / DTA (-)				-15.00
Comparison of P/L A/c and Computation of Income
payment of staff leave encashment from provision		10.00	10.00	3.00
payment of gratuity from provision		15.00	15.00	4.50
new provision for staff leave made from P/L A/c	5.00		-5.00	-1.50
new provision for gratuity made from P/L A/c	5.00		-5.00	-1.50
depreciation as per books and tax audit	20.00	16.00	-4.00	-1.20

Total of comparison				3.30

Closing Balance of DTL(+) / DTA (-)				-11.70

Or using Balance sheet approach also we can derive same figure as under : The closing balance of assets assuming depreciation rate of 20% will be Rs.80 & 64 lacs respectively. The closing balance of Gratuity provision will be 40-15+5=30 lacs and for Provision of Leave Encashment will be 30-10+5=25 lacs. The calculation will be as under.

Asset / Liability	as per books	as per I.tax.	difference	DTL (+) DTA (-) @ 30%

Assets :
Net fixed assets	80.00	64.00	16.00	4.80

Liabilities:
Provision for gratuity	30.00	0.00	-30.00	-9.00
Provision for staff leave encashment	25.00	0.00	-25.00	-7.50

total			-39.00	-11.70

Last year Deferred Tax Assets were of Rs.15 lacs which arrived at 11.70 lacs current year. So there is a deferred tax liability of Rs.3.30 lacs for current year. The only one entry will be passed in books for Rs.3.30 lacs DTL newly calculated. Profit & Loss A/C DR 330000/- To Deferred Tax Liability A/C 330000/- The balance of RS 11.70 lacs DTA will be reflected at asset side in Balance sheet.

What happens if deferred revenue is not recorded?

Accounting for Deferred Revenue – Since deferred revenues are not considered revenue until they are earned, they are not reported on the income statement. Instead they are reported on the balance sheet as a liability. As the income is earned, the liability is decreased and recognized as income.


	Debit	Credit
Cash	$1,000
Unearned Revenue		$1,000

Once the services are performed, the income can be recognized with the following entry: This entry is decreasing the liability account and increasing revenue.


	Debit	Credit
Unearned Revenue	$1,000
Revenue		$1,000

Why is deferred revenue considered a liability? Because it is technically for goods or services still owed to your customers.

How do you recognize deferred tax liabilities?

Common Situations – One common situation that gives rise to deferred tax liability is depreciation of fixed assets. Tax laws allow for the modified accelerated cost recovery system (MACRS) depreciation method, while most companies use the straight-line depreciation method for financial reporting.

Deferred tax liability is calculated by finding the difference between the company’s taxable income and its account earnings before taxes, then multiplying that by its expected tax rate. Consider a company with a 30% tax rate that depreciates an asset worth $10,000 placed-in-service in 2015 over 10 years.

In the second year of the asset’s service, the company records $1,000 of straight-line depreciation in its financial books and $1,800 MACRS depreciation in its tax books. The difference of $800 represents a temporary difference, which the company expects to eliminate by year 10 and pay higher taxes after that.

The company records $240 ($800 × 30%) as a deferred tax liability on its financial statements,
Differences in revenue recognition give rise to deferred tax liability.
Consider a company with a 30% tax rate that sells a product worth $10,000, but receives payments from its customer on an installment basis over the next five years – $2,000 annually.

For financial accounting purposes, the company recognizes the entire $10,000 revenue at the time of the sale, while it records only $2,000 based on the installment method for tax purposes. This results in an $8,000 temporary difference that the company expects to liquidate within the next five years.

The company records $2,400 ($8,000 × 30%) in deferred tax liability on its financial statements. The U.S. tax code allows companies to value their inventories based on the last-in-first-out (LIFO) method, while some companies choose the first-in-first-out (FIFO) method for financial reporting. During the periods of rising costs and when the company’s inventory takes a long time to sell, the temporary differences between tax and financial books arise, resulting in deferred tax liability.

Consider an oil company with a 30% tax rate that produced 1,000 barrels of oil at a cost of $10 per barrel in year one. In year two, due to rising labor costs, the company produced 1,000 barrels of oil at a cost of $15 per barrel. If the oil company sells 1,000 barrels of oil in year two, it records a cost of $10,000 under FIFO for financial purposes and $15,000 under LIFO for tax purposes.

Who makes changes to tax laws?

Proposed tax laws start the formal tax legislation process as a bill. This bill must follow specific steps outlined by the U.S. Constitution before, or even if, it is to become a law. Use Info Sheet 1: How Taxes Evolve to review the series of steps in the formal tax legislation process.

The tax bill is initiated in the House of Representatives and referred to the Ways and Means Committee. When members of this committee reach agreement about the legislation, they write a proposed law.
The compromise version of the bill is sent to both the House and the Senate for approval
After Congress passes the bill, it goes to the president, who can either sign it into law or veto it.
The bill goes to the Senate, where it is reviewed and often rewritten by the Finance Committee. The committee’s version is then presented to the full Senate.
The bill goes to the full House, where it is debated, possibly amended, and eventually approved.
If the president vetoes the bill, Congress may try to override the veto with a two-thirds vote of each house.
After the Senate approves the bill, it is sent to a joint committee of House and Senate members, who try to arrive at a compromise version.

Why is tax always changing?

Tax is changing. We’re changing tax. – Tax today is attracting attention like never before: among governments and citizens, in boardrooms and the C-suite—across businesses and their supply chains. Tax is at the forefront of negotiation and debate, and it is driving decisions on policy, trade, strategy and business transformation.

At the same time, the world around us has changed dramatically in terms of geopolitical shifts, technological innovation, globalization, new business and consumer demands, and new ways of living, and the emergence of previously unseen types of businesses. It might seem like tax stormed the world overnight.

But the changes we see now stem from an accumulation of forces and factors reaching back decades. In the past 20 years, as globalization has taken hold and technology has flourished, corporate income taxes have diminished in importance while indirect taxes have become a bigger part of the tax revenue mix.

Digitization has allowed governments to focus more on collecting taxes at the level of individual transactions, and tax compliance has pervaded processes across businesses and intensified financial risk. Meanwhile, reputational risk around tax has reached new heights as governments and the general public have taken more interest in large corporations and how much tax they pay.

The global effort to curb tax base erosion and profit shifting has concentrated attention on both tax competition among countries and tax responsibility among corporations. This international work has also encouraged more cooperation among tax authorities, along with more inclusiveness and collaboration on tax between developed and emerging economies.

Changes are equally profound within international businesses.
Globalization and technology have enabled new ways of doing business, and tax has become enmeshed with all aspects of business transformation.
And as businesses transform, their tax functions are beginning to evolve into sources of significant strategic value.

If you find it hard to fathom the depths of interconnection between tax and the worlds of politics, society and business, you’re not alone. It can be helpful to think about these interconnections in view of four overarching trends –trends that overlap with each other but that all have chief tax officers and tax leaders at their very center.

Shifting geopolitical currents: From Brexit to tightening immigration to tariff wars, modern times are seeing the erosion of multilateral institutions and agreements amid rising nationalism and protectionism. Uncertainty reigns as tax policies shift accordingly. With a growing vacancy in leadership at the global level, China in particular seems set to gain new prominence on the world stage.

Digitizing tax data and processes: Tax authorities are investing in technology to improve how they assess risk and boost collections. Tax functions are investing in technology to enhance automation, improve the accuracy and visibility of their tax data and unlock its strategic value.

Digitization is allowing governments to direct policy toward economic activity at the level of distinct transactions and to consider new forms of taxation of activity in the digital domain.
Advancing technology is disrupting tax on each of these fronts, with all of them leading toward more extensive, real-time analysis of ever more tax data.

Evolving business models: The past two decades have seen fundamental shifts in all aspects of international businesses: from how they invest, through how they make money, to how they distribute profits and deploy capital. These changes have been requiring companies to continually change their tax strategies, which is increasingly tough as the international tax system itself has come under strain.

Reimagining tax functions: All of the above are putting pressure on chief tax officers to question their tax operating models and find new ways to structure their people, processes and technology to meet the demands of the future.
As the world of tax transforms, chief tax officers themselves are changing.

Where the job used to require knowledge of both the law and accounting, tomorrow’s chief tax officers will need to add new skills to the mix. Understanding tax technology and data analytics will be critical for both compliance and strategic decision making.

How often does tax code change?

When does my new tax code start? – Your new tax code applies from the start of each tax year on 6 th April and runs until the following 5 th April. So the 2021 tax code started on 6 th April 2021 and runs until 5 th April 2022. The Personal Allowance amount is announced in the annual Budget and stays the same for the whole tax year.