Question

Corporate taxable income is based on an income statement that is similar to income statements prepared for financial reporting.  It has Revenues less expenses equals income.  How is the computation for personal taxable income different from this income statement concept?  Why do you think these differences exist?

Answer 1

Corporate taxable income is based on an income statement that is similar to income statements prepared for financial reporting. It has Revenues less expenses equals income. How is the computation for personal taxable income different from this income statement concept? Why do you think these differences exist?

Computation of personal taxable income and Corporate taxable income is having different concept but there are similarities also between both these concepts , as mentioned below.

• Corporate taxable Income is the Income of an organization ,who is running a business , where they have to incur certain expenses on running the business and their earnings are sale of goods or services , with the contribution of all stakeholders like employees, shareholders, financial institutions and government agencies.
• The concept is of business which means that they would manufacturing or provide some service , at a cost and will charge their remuneration or price for the same.
• At the year end , the difference of Income and Expenses is subject to tax, after paying the dues of the stakeholders like Employees salaries and wages , Cost of running the business, taxation to the government , dividend to the shareholders etc.
• Since a corporate has a set of team working for the corporate and they have a cost of working, that is to be considered while computing the income and expenditure or Profit and Loss statement.
• The profit at the year end is taxable at the prescribed rates.

Computation of personal taxable income is having different concept

• Here the tax is levied on the individual who is earning his remuneration by serving for some organization or corporate.
• Here the concept is changed and he has to pay the tax , whatever he earns , after deducting certain exemptions or deductions from the Income
• He is not allowed to deduct his personal expenses for calculation of Income tax.

The point of similarities between Corporate taxable income and personal taxable income:

• While in Corporate taxable income , the businessman is not allowed to charge his personal expenses to the business and if any personal expenses has been charged to business, it has to be deducted from business expenses and tax is payable on it . Business expenses are allowed to be charged to the Business Income.
• Same way ,in personal taxable income, the individual is not allowed to deduct any personal expenses for computation of taxable income.

Hence, we can conclude that conceptually there is big difference between corporate taxable income and personal taxable income. However, the methodology is different in both the cases .