Question

1. Imagine you ran a business that completed individual tax returns for clients.
   1. Describe two key policies or procedures your business would have in relation to the completion of individual tax returns
   2. Outline two key accounting principles and practices your business would adhere to in relation to the completion of individual tax returns

2. Give a definition and explain the following terms in relation to the administrative aspect of preparing an individual tax return
   1. Tax documentation

country: Australia

Answer 1

a. Understanding our obligations - Its imperative for a tax consulting business to be aware of its regulatory and related compliances and obligations like filing returns on time and with accuracy. This will ensure that compliance is maintained and sound practices are followed.

Proper professional advise -  You should be able to explain to the client how the law applies to its specific circumstances. A proper advise is one which is professional, reduces tax risks, ensures compliance and provides a resource for potential tax planning.

b. Valuation of Inventory - Balance sheet items can be accounted for differently when preparing financial statements and tax payables. For example, companies can prepare their financial statements implementing the first-in-first-out (FIFO) method to record their inventory for financial purposes, yet they can implement the last-in-first-out (LIFO) approach for tax purposes. The latter procedure reduces the current year's taxes payable.

Asset Valuation - Depreciation on assets is a tax deductible expense and hence can be used for tax planning purposes. If excess depreciation has been claimed then taxes for the current year can be reduced and vice versa.

c. Tax Documentation - Tax documentation refers to all the papers and records required and generated in the process of filing a tax return like working papers, planning sheets, draft financials. Documentation can be physical or in electronic form. Its important to preserve this documentation for a period of few years post the date of filing the return, it helps in explaining the tax computation to the relevant authorities.