Arizona & Federal

Income Taxes

Jacobsen & Wachterhauser, PLC offers you fast and accurate federal and state income tax preparation services. Our friendly and knowledgeable Arizona income tax professionals make customer service a top priority, guaranteeing client satisfaction.

We can get your income tax refund processed and returned to you faster via e-filing.

Our standard tax returns, prepared by CPAs, are more precise and even cost less than similar services offered by national tax preparation companies, such as Liberty Tax or H&R Block.

We are always available to assist you. Our offices are conveniently located in the Camelback area in Phoenix; to schedule a consultation, click here to contact us.

Tax Law and Accounting
Due to the ever changing tax laws it’s necessary to be knowledgeable in modern tax structures, tax entities, and the various types of taxes. The goal of Jacobsen and Wachterhauser is to provide our clients quality service through our knowledge of the objectives of modern income tax statutes as well as Generally Accepted Accounting Principles (GAAP), and Arizona tax accounting. In addition, we strive to comply with all tax laws while optimizing our client’s savings.

Today’s Income Tax Statutes
The purpose of income taxes is primarily to raise revenue for government operations. According to Section 8 of the Constitution of the United States of America, “The Congress shall have power to lay and collect taxes, duties, imposts, and excises, to pay the debts and provide for the common defense and general welfare of the United States.” Section 8 continues to explain that the revenues are used to coin money, establish post offices and post roads, promote the progress of science and useful arts tribunal, and to raise and support armies.

Modern income tax statutes are also used to support these government actions, however, additional objectives include economic objectives designed to stimulate private investment, reduce unemployment, and for the mitigation of the effects of inflation on the economy. Another objective of income tax law is to support certain activities, which includes small businesses and specialized industries. This is accomplished by permitting immediate write-offs of expenses; providing special tax credits; reduced corporate taxes; with the use of stipulations; incentives for small business entities, and a range of other deductions.

There are some tax laws that are enacted to either encourage or discourage certain socially desirable, or undesirable, activities.

Examples include:

• special tax-favored pension and profit-sharing plans designed for employees and self-employed individuals for the supplementation of the social security retirement system
• charitable contributions can be deducted to promote individuals to contribute to charitable organizations
• the prohibition of claiming a deduction for illegal bribes, fines, and penalties, which discourages activities contrary to public policy

Accordance with Generally Accepted Accounting Principles and Tax Accounting
Several differences between GAAP and tax accounting do exist. Some of the most significant differences can be seen when comparing revenue recognition techniques, revenue from municipal bonds, when depreciation of fixed assets is assessed, and for nonprofit organizations in the form of government awards, cost-sharing, fair market value on investments, prepaid fundraising costs, and gifts of property or service.

Regarding revenue recognition, under GAAP guidelines, rent revenue is recognized when revenue is earned, whereas with tax code, the collection of rent is considered a factor of taxable income. Revenue from municipal bonds is recognized as interest earned, under the GAAP basis of accounting, while tax accounting allows interest revenue from municipal bonds to be exempt from federal taxes. When assessing tax liability for the depreciation of fixed assets, different depreciation methods are permitted under GAAP. However, tax accounting does not acknowledge the depreciation of fixed assets as having a residual value.

Some of the differences between GAAP and tax accounting for nonprofit organizations include:

• government awards – under GAAP government awards are not required to be treated as exchange transactions, whereas under tax accounting they are viewed as payments to allow the nonprofit to provide its services
• cost-sharing arrangements – GAAP allows for the combination of dissimilar tax types; however, if not combined, GAAP views these arrangements as taxable. Tax accounting sees all cost-sharing arrangements as the same, they are not viewed as dissimilar
• fair market value on investments – recognized at fair market value, under GAAP, while tax accounting law makes it optional for investments to be recognized at fair market value
• prepaid fundraising costs – GAAP differs in that it allows prepaid fundraising costs to be expensed over the life of the fundraiser’s effect or effort, furthermore, GAAP requires that expensing be conducted for all promotional costs. Tax accounting for prepaid fundraising costs is to be reported on Form 990
• gifts of property or service – GAAP guidelines for gifts of tangible assets require that they are recorded at fair market value, which is the same process for gifts of tangible assets under tax accounting law

Differences exist between GAAP and tax accounting due to the nature of the purpose of their reports. GAAP is the standard for reporting operations and financial data of businesses and financial institutions for conforming to meet FTC (Federal Trade Commission) and SEC (Securities and Exchange Commission), plus for use by the reporting firm’s stakeholders. Tax accounting procedures are also designed to report operations and financial data; however, the information is for use by taxing authorities and governing agencies, including the IRS and Social Security.

What is Tax Avoidance and Tax Evasion?
While both tax avoidance and tax evasion are methods used to reduce one’s tax liability, significant difference, in terms of legality, exist in how both are perceived. Tax avoidance is the process of minimizing taxes through legal tax planning strategies. While often an aggressive method for reducing a tax burden, tax avoidance is not against the law unless this privilege has been abused. Tax evasion is the elimination, or minimization, of taxes by the use of illegal strategies. This may include such strategies as improperly filing a tax return and when tax avoidance techniques have been abused.

Organizations should use tax planning to best reduce their tax liability, properly using tax avoidance methods can greatly help to accomplish this; however, when tax evasion takes place, the offending organization, or individual, is knowingly manipulating its tax burden.

What You Should Know… In Short
The objectives of modern income tax statutes include generating revenue to fund government operations. This includes funding for law enforcement, other governmental agencies, military actions, scientific developments, and the building of roads, parks, and infrastructure. In addition tax statutes are designed to aid economic conditions and social situations. GAAP and tax accounting serves two different purposes this is why significant differences between the two methods exist. Considerable contrasts are seen when comparing the GAAP basis and tax accounting basis for nonprofit organizations. Tax avoidance and tax evasion are viewed as entirely opposite strategies used to reduce one’s tax liability. Differentiating between the two is important because tax avoidance uses legal techniques, while tax evasion is not considered lawful. Understanding tax law and accounting is vital for corporations, small businesses, individuals, and especially accountants and CPAs for maximizing a firm’s bottom line and legally reducing tax responsibility.

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