How Taxpayers Can Review Financial Plans During Tax Season

Importance of Using Tax Season to Review Financial Plans

Discuss about the Factors To Consider When Filing Your Tax Returns.

In the essay below, the accounting issues presented in the provided article are explained in detail and their relation to the accounting theories. The assumptions and implications of the theory are also described (Khanna, 2018). Americans are ask to fill their tax returns as the period is fast-closing. Many Americans are preparing to fill their tax returns.

They are encouraged to use this as an opening to review the financial plans that they set at the beginning of the year. The article explains that this is the essential time to review the plans because at this time one has all their information in one place. Also, one is easily able to recall their login information such as passwords and usernames.

The financial advocate at AICPA’s who is Kelley Long said that one issue that many Americans encounter when wanting to make changes in their plans is that they forget information necessary for logging in. In order to gain access to tax papers at this time, one is forced to obtain this information. The article, therefore, suggests that since one already has access to these papers, they can use the opportunity to go over the financial plans and see if the set goals were achieved (Cooper, 2017).

By checking the financial plans each year, one can keep track and ensure that the targets are met. The tax returns can be used to remind Americans to check their plans because they are filed on a yearly basis. Thus acts as an alarm clock. Approximately 8 in 10 Americans use their files on tax returns as a basis in their financial plans. This was established by a Harris poll carried in 2017 (Coetzee, 2017).   This period ensures that a person sets plans for his priorities. One organizes and analyzes one’s source of income, investments made and their outcomes, and lastly the deductibles at the time of income tax. This helps one in identifying if the set goals were achieved or if they can lead to the achievement of the set goals (Schaltegger & Burritt, 2017).

A person is required not to have a significant tax refund, and if this is the case, then it should be rectified. Also, one is required not to overpay their taxes while at the same time ensuring that they have not underpaid. In the instance that a person pays a large amount of tax, then the Internal Revenue Service (IRS) is the one that benefits because they get a free loan interest. The person has not accomplished anything. Consequently, if a person decides to pay little income tax, then their tax bill will be too high. In conclusion, during this period it is more appropriate to have more money on the paycheck instead of having a huge tax refund (Jackson & Ramnath, 2017).

Tips for Monitoring Income, Investments, and Deductibles

Some of the accounting theories that are relayed in the article are:

This theory is simply explained as one where a person gauges all the accounting systems and determines which is best suited to accomplish one’s strategies. It is the most prescriptive of all the accounting theories. In this scenario, the taxpayer goes through all their financial information such as the income and deductibles, and then they gauge whether the strategies were met. If the goals were not achieved, then the taxpayer will have to come up with a system that is appropriate for the payers to reach their objectives in the coming year.

For example, the issue where the taxpayer pays a large amount of tax returns. After the person realizes that they are not benefiting from paying huge tax returns, they will need to come up with an accounting system that is suitable to make sure that the returns are neither huge nor small. By choosing an accounting system, the taxpayer can ensure that he/she is left with sufficient money in the account. This is appropriate since they can make important financial decisions with the surplus such as investing in other businesses to achieve the set goals.

One assumption is that one accounting system can be better than another. Each accounting system varies from the other because they are all set to achieve different objectives. A certain objective may not be achieved when a certain accounting system is used but can be achieved when another is used. A good example is a person may select a system that earns them a lot of money. This is a sufficient goal, but this might not be the end goal of the taxpayer. The tax payer’s objective may be to have an excellent income tax record, and the chosen accounting system may hinder them from achieving this. Hence it is correct to say that all accounting systems are unique in their ways and thus, we cannot assume that there is a system that is superior to the other.

Another assumption of this theory is that the results are scientific when they are not. Hence it is not applicable.

This theory states that a person will try to predict accounting practices and also give an explanation to them (Smith, 2017). It relates to the topic in that the taxpayer goes over their financial plans and tries to predict the accounting policies that can be used. One can also use accounting standards that can be used in the financial plans. One does this so that they can predict what they expect in the coming year (Kaya, 2017).

Accounting Theories and Financial Planning

One assumption of this theory is that it predicts what will happen rather than explaining it. A good example is that a taxpayer may choose a certain policy after analyzing their financial records to achieve a certain goal. The goals may not go as planned because they were only predicted and a lot of changes may occur that may cause this. A person may decide to spend less money on food, but during the year they might get sick and be required to eat certain foods by the doctor (Trottier & Gordon, I2017). These foods may be more expensive and cause the person to have to spend more than the intended amount of food. The changes cannot be forecast by the positive account theory (Evans & Tourish, 2017).

Thus it is only able to forecast expectations rather than conclusions or solutions. The taxpayer only assumes what will happen but not what they should do. He or she, therefore, does not have any specific set guidelines to meet their strategies but expectations on what they will accomplish (Schaltegger & Burritt, 2017).

Another assumption is that each tax payer’s strategy is to earn more money even when faced with consequences (Wildavsky, 2018). A person may set up objectives that aim at this goal, but not every person wishes to earn more money.

The agency theory states that a person looks at two relationships which are the principles of business and agents of business. The goal of the theory is to solve the issues that are associated with these two (Trottier & Gordon, 2017. The issues are mainly due to a conflict in the strategies and desires (Ramnath & Tong, 2017). The taxpayer is the principle, and the IRS is the agent. The problem that relates to this theory is when the taxpayer is in constant battle with the IRS because of delinquent tax returns and even delay the payment (Smith, 2017). This conflict makes the IRS and the taxpayer not to be in good terms, and the IRS may issue penalties to the taxpayer because of delays (Khanna, 2018). The taxpayer will find it even more difficult to pay the surplus charges (Coetzee, 2017).

The IRS and the taxpayer will henceforth be in constant battle over the due taxes. The IRS is, therefore, the ones who make the decisions and the taxpayer follows.

The assumptions in this theory are presented below

One assumption is that the risks present are ignored. The IRS suffers little to no risks whereas the taxpayer is faced with all the risks involved (Cooper, 2017). It is correct to say that the agent suffers no losses (Jackson, Looney & Ramnath, 2017). The principal, on the other hand, is faced with every risk. As seen above, the taxpayer will suffer consequences if they do not pay their taxes and need to be on their toes on filing them. (Evans & Tourish, 2017).

Another assumption is the relationships with the third party. The theory only takes into account relationships that involve two parties. As seen in the article there are only two parties which are the taxpayer and the IRS. It is correct to say that parties of more than three are not catered for (Shogren et al., 2017)

Conclusion

Issues presented in the newspaper article are crucial, and Americans need to consider them to save themselves from future mishaps. If one wants to achieve the strategies that they have set, then they need to be at purr with their plans. Also, many people have a tendency of forgetting their financial details, and this is significant information that one needs to monitor their plans (Kaya, 2017). Hence the taxpayer needs to note down this somewhere to get it quickly next time.

Also, taxpayers are encouraged not to pay too much tax and at the same time not too little. Both can result in problems that the taxpayer will find hard to rectify in the future. In conclusion, it is essential to manage your tax returns well to accomplish your goals.

The main aim of this amendment is to assist institutions in taking control of the cost that a customer pays for an arrangement by issuing instructions on when the arrangement should include a license. If the cloud computing comprises a software license, then the customer will cater for the license. Hence, the license is an intangible asset. Also, the license will be liable to an extent where the payments can be attributed to the software license. In situations where a license is not included in the arrangement then the institution will account for it as a contract of service. Hence any costs that are met in the service of the cloud arrangement will be catered for as met. (FASB Exposure Draft, 2018)

This draft caters to the public interest. This is because it helps entities know the money that will be spent in implementing and also obtaining the software. This way they are fully aware of what is needed and thus it is correct to say that they are for the public interest.

In this amendment, one can know the costs that are needed in a contract and how much will be used. These steps are given in the draft, and hence a person gains information in the area and can be guided step by step.

The amendment also clearly states that a person will meet the costs that are required to implement a service in a contract. This is crucial to a customer because they can fully account for their money by knowing where and when it was spent. This is also another way of letting the customer decide that they are satisfied with their decision in the contract and by using their own money, they are sure that the returns will be fruitful.

The institution offer full support of the amendments in the draft and this was because the draft offered a step by step guide on how to account for the costs to implement in a contract of service despite there being a lot of diversity.

In their current policies, the company lays out the steps on how they can account for the money for a software license in situations where the contract has the license. It is at times a problem because there are diverse ways in which an entity will decide to cater for the costs in an arrangement for carrying out that arrangement. The exposure draft, however, can conquer this issue and offer a suitable alternative.

This particular letter disagrees with the regulation

The institution believes that the cost that is supposed to be used in completing the contract does not qualify to be called an asset. The Board of the company thus sees it fit that the FASB Board make changes to the exposure draft and not support this being an asset. They, therefore, disagree with this.

The following are the views of the company.

The board at CalCPA is for the amendments proposed in the exposure draft, and they accept that it will help in making arrangements for contracts and that they will be not only reasonable but also consistent. The board also believes that the draft can be used to apply to a hosting arrangement as shown in step by step guide in the draft. 

Also, the CalCPA board agrees that every client in the company should use the impairment model to know the money required to meet the cost of a contract of service. This is clearly outlined in Subtopic 350-40.

This letter agrees with the regulation

The company supports the exposure draft in that they have given a clear definition of what an arrangement is, what is required for an arrangement and the cost that is needed to fulfill the contract. Therefore the company believes that the guidelines given are enough to make arrangements including small ones (Hayes & Reckers, 2017).

An example is “The Committee believes that the guidance in Subtopic 350-40 can be consistently applied to a hosting arrangement. However, the Committee is aware that under a common approach to software development the stages of development in Subtopic 350-40 may overlap or b difficult to identify.’

The following are the views in the letter

The company is undergoing a system upgrade in their cloud enterprise resource planning (ERP). This cloud enterprise characteristic is similar to those that are in the exposure draft. Thus they are provided with a guide on how to go about the upgrade. Also, it is a complicated process that the company needs assistance from the guide to successfully upgrade. The company is therefore grateful for the guidance provided, and it makes their upgrade simpler and more straightforward.

The company also wants to up their system, and the amendments in the exposure draft guide them, and thus they will be able to avoid any complications that will be met along the way. The company also complies with the draft in that they see it best for the customer to have the licensed software rather than the company. This way they can put all their focus on other areas cost encountered for the arrangements (Gans & Ryall, 2017).

The letter agrees with the regulation in that

The company supports the FASB exposure draft in allowing the customers to cover the cost of implementation because they believe it is more helpful to them than to the customer. 

They also agree with the exposure draft that license software qualifies as an asset.

The letter disagrees with the regulation in that

The company does not support the guidelines regarding licensing because they believe that it has not included services that involve small hosting elements. They, therefore, would like the FASB board to make minor changes and include the small hosting arrangements in the new draft (Kelsen, 2017).

 For example, the comment’ the proposed amendment contains specific disclosure requirements that are not included under the current relevant guidance in U.S. GAAP. We believe requiring the proposed disclosures for each hosting arrangement may not be useful for the users of the financial statements and burdensome for companies as they may enter into multiple hosting arrangements.’

This organization agrees with the amendments in the exposure draft and believes that the cost that is covered for implementing a contract can be used in future because they are beneficial, and also they qualify as assets (Levi-Faur, 2017).

They, however, do not agree with some of the guidelines in the proposed ASU. This is because to them; they will not offer any information that can be used by investors to make decisions.

They ask the FASB board to stick with the guideline in the exposure draft because those are useful to them.

The letter is against the regulation as shown

The company believes that the cost of implementing a contract in the amendment only consider a few forms of costs for setting up that a person may obtain during the contract (Lin, 2017).

An example is the comment ‘We do not believe the information related to the disclosure requirements in the Proposed ASU is used by management to operate the business (Grunig, 2017). We believe that disclosures provide decision-useful information to users when the disclosures are closely aligned to information that management uses to operate the business (Friedman, 2017). Conversely, providing information to users that are not used by management unnecessarily adds to the complexity of financial statement disclosures while providing little, if any, a benefit to users.’

The public theory states that a company will always act in a way that benefits the public who are its customers (Deegan, 2013). The comment letters that act in the interest of the public are letter two and three. This is because all the set objectives of both companies put their clients first instead of the company. For instance, they see it fit that the customer owns the license because it will benefit them (Manish & O’Reilly, 2018).

This theory is the one that best suits all the letters, and all of them have utilized this theory. All the letters have agreed with the exposure draft in a way that their interests lie in public and not the organization (Mansbridge, 2018).

This theory states that a company will act in favor of the company as opposed to its clientele (Deegan, 2013). The comment letter that utilizes this theory is the fourth. This is seen when they say that the draft does not cover all forms of costs. Therefore, the company is left unaware of what to spend which is an issue for the company (Dubos, 2017).

This theory at least explains the letter comments above. The comment letters are of interest to its customers rather than to the organization (Van Gunsteren, 2018).

This theory states that an institution is created to govern a company so that its interests are not in the community but instead are captured and allow the company to favor themselves. No letter has utilized this theory, and it is the least that explains them (Deegan, 2013).

References

Coetzee, N. (2017). Factors to consider when filing your tax returns. Personal Finance Newsletter, 2017(443), 3-5.

Cooper, R. (2017). A brief guide to tax filing. TAXtalk, 2017(65), 42-45.

Deegan, C. (2013). Financial accounting theory. McGraw-Hill Education Australia.

Dubos, R. (2017). Social capital: Theory and research. Routledge

Evans, S., & Tourish, D. (2017). Agency theory and performance appraisal: How bad theory damages learning and contributes to bad management practice. Management Learning, 48(3), 271-291.

FASB Exposure Draft. (2018). Proposed Accounting Standards Update: Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40). Retrieved from https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176170115612&acceptedDisclaimer=true

Friedman, M. (2017). Price theory. Routledge.

Gans, J., & Ryall, M. D. (2017). Value capture theory: A strategic management review. Strategic Management Journal, 38(1), 17-41.

Grunig, J. E. (2017). Symmetrical presuppositions as a framework for public relations theory. In Public relations theory (pp. 17-44). Routledge.

Hayes, M. J., & Reckers, P. (2017). Subordinate Narcissism, Generational Differences, and the Development of Accounting Estimates.

Jackson, E., Looney, A., & Ramnath, S. (2017). The rise of alternative work arrangements: Evidence and implications for tax filing and benefit coverage. Office of Tax Analysis Working Paper, 114.

Kaya, ?. (2017). Accounting Choices in Corporate Financial Reporting: A Literature Review of Positive Accounting Theory. In Accounting and Corporate Reporting-Today and Tomorrow. InTech.

Kelsen, H. (2017). General theory of law and state. Routledge

Khanna, S. (2018). The ideal time to review your finances. Journal of Accountancy. Retrieved from https://www.journalofaccountancy.com/news/2018/apr/financial-and-tax-planning-season-201818750.html

Levi-Faur, D. (2017). Regulatory capitalism. Regulatory Theory, 28

Lin, N. (2017). Building a network theory of social capital. In Social capital (pp. 3-28). Routledge.

Manish, G. P., & O’Reilly, C. (2018). Banking regulation, regulatory capture and inequality. Public Choice, 1-20.

Mansbridge, J. J. (2018). A deliberative theory of interest representation. In The politics of interests (pp. 32-57). Routledge.

Ramnath, S. P., & Tong, P. K. (2017). The Persistent Reduction in Poverty from Filing a Tax Return. American Economic Journal: Economic Policy, 9(4), 367-94.

Schaltegger, S., & Burritt, R. (2017). Contemporary environmental accounting: issues, concepts, and practice. Routledge.

Shogren, K. A., Wehmeyer, M. L., & Palmer, S. B. (2017). Causal agency theory. In Development of Self-Determination through the Life-Course (pp. 55-67). Springer, Dordrecht.

Smith, M. (2017). Research methods in accounting. Sage.                 

Trottier, K., & Gordon, I. M. (2017). Agency theory: applications in Behavioural Accounting Research. In The Routledge Companion to Behavioural Accounting Research (pp. 121-130). Routledge.

Van Gunsteren, H. R. (2018). A theory of citizenship: Organizing plurality in contemporary democracies. Routledge

Wildavsky, A. (2018). A Normative Theory of Budgeting?. Performance-Based Budgeting.

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