Tax Allocation: A Macro Approach.

Abstract An attempt has been made to show that income taxes are properly classified as expenses. Under theoretically normal economic conditions, tax disbursements to the government would be normal expenditures. From a practical point of view, adjustments must be made for the imperfections of the economic system as administered by the government. These imperfections are best measured by the accounting concept of matching costs and revenues. As such, researchers are able to determine the true tax liability and should allocate amounts different from the actual cash assessments to other accounting periods. There seems to be little controversy as to the alternative ways of reflecting to management the amount of before tax income. The usual procedure is to calculate this amount according to accounting depreciation, a practice that is followed in accordance with the principle of matching costs and revenues. The difficulty concerns the amount of tax to deduct in obtaining a net-income figure. One alternative is to deduct the tax as determined by the accounting depreciation figure and the other is to deduct only the legal tax liability figure the amount to be paid to the government.