in this lesson we’ll talk about income
taxes both individuals and corporations pay income taxes to fund the government
and allow it to serve public interest in the US companies can be required to
pay both federal and state income taxes which are determined based on the
business income a specific company has generated deducting some of the
operating and capital expenses the firm has sustained to generate the income
typically companies report taxes as the penultimate line of their P&L before
that they will have a line called earnings before taxes and once taxes
have been considered the result will be net income sometimes there can be a
difference between revenues and expenses registered for the purpose of accounting
and tax calculation accounting entries respect accounting standards like the
IFRS and US GAAP and tax calculations are performed based on federal and state
tax laws there can be substantial differences between the two some costs
can be correctly registered as expenses in the P&L but can also be deductible
from the perspective of a tax calculation therefore we can conclude
that tax calculation is a topic of its own and tax calculation activities are
typically performed with the help of specialized tax professionals who are
knowledgeable and can help the company deduct costs and hence maximize tax
payments financial analysts and finance managers are rarely directly involved in
tax discussions usually when performing cash flow analysis and working on
financial models they apply an average tax rate the company has paid an average
tax rate can be calculated by dividing income taxes by earnings before taxes