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Taxable Income (taxable + income)

Distribution by Scientific Domains
Business, Economics, Finance and Accounting85%

Selected Abstracts

Taxable Income as a Performance Measure: The Effects of Tax Planning and Earnings Quality,

CONTEMPORARY ACCOUNTING RESEARCH, Issue 1 2009
Benjamin C. Ayers
First page of article [source]

Credit Ratings and Taxes: The Effect of Book,Tax Differences on Ratings Changes

CONTEMPORARY ACCOUNTING RESEARCH, Issue 2 2010
BENJAMIN C. AYERS
G29; H25; H32; M41 This paper examines whether credit analysts utilize the information contained in the difference between book and taxable income in analyzing a firm's credit risk. Increased book,tax differences may be informative for credit rating agencies as they may signal decreased earnings quality or changes in the firm's off,balance sheet financing. Results suggest a significant negative association between positive changes in book,tax differences and ratings changes. This evidence is consistent with large positive changes in book,tax differences signaling decreased earnings quality and/or increased off,balance sheet financing. We also find that large negative changes in book,tax differences result in less favorable rating changes, consistent with these changes signaling decreased earnings quality. In additional analyses, we find that the association between changes in book,tax differences and rating changes is attenuated for high,tax-planning firms (e.g., where book,tax differences more likely reflect tax planning than decreased earnings quality). [source]

ESTIMATING THE TAX BENEFITS OF DEBT

JOURNAL OF APPLIED CORPORATE FINANCE, Issue 1 2001
John Graham
The standard approach to valuing interest tax shields assumes that full tax benefits are realized on every dollar of interest deduction in every scenario. The approach presented in this paper takes account of the possibility that interest tax shields cannot be used in some scenarios, in part because of variations in the firm's profitability. Because of the dynamic nature of the tax code (e.g., tax-loss carrybacks and carryforwards), it is necessary to consider past and future taxable income when estimating today's effective marginal tax rate. The paper uses a series of numerical examples to show that (1) the incremental value of an extra dollar of interest deduction is equal to the marginal tax rate appropriate for that dollar; and (2) a firm's effective marginal tax rate (and therefore the marginal benefit of incremental interest deductions) can actually decline as the firm takes on additional debt. Based on marginal benefit functions for thousands of firms from 1980,1999, the author concludes that the tax benefits of debt averaged approximately 10% of firm value during the 1980s, while declining to around 8% in the 1990s. By taking maximum advantage of the interest tax shield, the average firm could have increased its value by approximately 15% over the 1980s and 1990s, suggesting that the consequences of being underlevered are significant. Surprisingly, many of the companies that appear best able to service debt (i.e., those with the lowest apparent costs of debt) use the least amount of debt, on average. Treasurers and CFOs should critically reevaluate their companies' debt policies and consider the benefits of additional leverage, even if taking on more debt causes their credit ratings to slip a notch. [source]

The Provision of Tax Services by Incumbent Auditors and Earnings Management: Evidence from Korea

JOURNAL OF INTERNATIONAL FINANCIAL MANAGEMENT & ACCOUNTING, Issue 1 2009
Won-Wook Choi
This study examines the associations between the provision of tax services by incumbent auditors and earnings management. We investigate whether three different effects of tax service provision play different roles in accounting practices. The three effects include the audit independence effect, the knowledge spillover effect, and the tax avoidance effect. If the provision of tax services by incumbent auditors harms auditor independence, firms may exercise greater earnings management (audit independence effect). However, if incumbent auditors gain incremental knowledge by offering tax services, the quality of their audit services could be enhanced, and therefore, reported earnings could be more conservative (knowledge spillover effect). If tax service fee leads to low taxable income, it could depress book income when book-tax conformity is high (tax avoidance effect). We find that the provision of tax services generally improves earnings quality by curtailing opportunistic accounting practices. The results also suggest that the negative association between the provision of tax services and discretionary accruals seems to be primarily driven by the knowledge spillover effect as opposed to the tax avoidance effect. Additional analysis is conducted in examining whether the tax avoidance effect exists in a sub-sample. [source]

Estimating tax noncompliance with evidence from unaudited tax returns

THE ECONOMIC JOURNAL, Issue 518 2007
Naomi E. Feldman
This article estimates the degree of tax noncompliance using evidence from unaudited tax returns. Measurements of noncompliance are derived from the relationship between reported charitable contributions and reported income from wages and salary as compared to alternative reported income sources such as self-employment, farm and other small business income. Assuming that the source of one's income is unrelated to one's charitable inclinations and that the ratio of true income to taxable income does not vary by income source, any difference in the relationship between charitable contributions and the source of income can be attributed to (relative) underreporting by the individual. We find that the implied amount of noncompliance is significant and that it varies by source of income, as well as between positive and negative values of each type of income. [source]

Effort and Aspirations in Tax Evasion: Experimental Evidence

APPLIED PSYCHOLOGY, Issue 3 2009
Erich Kirchler
Is the effort exerted to earn taxable income considered in compliance decisions? And if so, is hard-earned income or easy money more likely to be concealed from authorities? While economic theory postulates that prior costs should not affect present decisions, psychological research shows that prior investments of money, time, or effort do matter. Findings from previous studies on the impact of effort on abstract decision tasks suggest two contradictory predictions for the context of tax compliance decisions: Either taxable income earned by high effort is subjectively of higher value, and therefore more likely to be evaded, or investments of effort cause a shift of the reference point through the establishment of an aspiration level, resulting in honest declaration of income. Two experiments were conducted to test these predictions. In a business simulation, taxable income was obtained by different levels of effort and consequently had to be reported to authorities. Results show that tax evasion was more pronounced in low-effort conditions. This suggests that effort changes the reference point rather than the slope, and provides evidence that in tax compliance decisions aspiration levels serve as reference points. Implications for tax audits are discussed. L'effort déployé pour obtenir des revenus imposables est-il pris en compte dans les décisions qui en découlent? Et si c'est le cas, est-ce l'argent facile ou les revenus durement gagnés qui présentent une plus forte probabilité d'être soustraits au fisc? Alors que la théorie économique postule que le coût antérieur n'a pas de retombées sur les décisions présentes, les recherches de psychologie montrent que les investissements passés en argent, temps ou effort ont leur importance. Des travaux sur l'impact de l'effort sur des tâches de décision abstraite débouchent sur deux prédictions contradictoires en ce qui concerne les décisions relatives à l'impôt: ou le revenu imposable obtenu à la suite d'un effort substantiel est subjectivement fortement valorisé et a de fortes chances d'être camouflé, ou l'effort investi provoque un changement de référence à travers l'instauration d'un niveau d'aspiration, ce qui a pour conséquence une déclaration honnête des revenus. On a réalisé deux expériences pour mettre à l'épreuve ces prédictions. Dans une simulation commerciale, le revenu imposable a été obtenu suite à différents niveaux d'effort et devait être portéà la connaissance du fisc. Les résultats montrent que l'évasion fiscale était plus accentuée dans les conditions où l'effort était modeste. Il faut en conclure que l'effort entraîne une mutation du système de référence plutôt qu'une simple modification de niveau et que dans les décisions relatives à l'impôt les niveaux d'aspiration servent de point de référence. On réfléchit aux leçons à en tirer pour le contrôle fiscal. [source]

Do Very High Tax Rates Induce Bunching?

THE ECONOMIC RECORD, Issue 270 2009
Implications for the Design of Income Contingent Loan Schemes
Under the Higher Education Contribution Scheme graduates face a sharp discontinuity in their taxable incomes. At the first repayment threshold, they are required to pay a percentage of their entire income to reduce their debts. This results in an extremely high effective marginal tax rate. Using a sample of taxpayer returns we investigate whether taxpayers bunch below the repayment threshold. We find a statistically significant degree of bunching below the threshold, but the effect is economically small. The result has important implications for the design of income contingent university loan schemes. [source]