(BQ) Part 2 ebook "Construction accounting and financial management" has contents: Projecting income taxes, cash flows for construction companies, time value of money, tools for making financial decisions, income taxes and financial decisions,.and other contents. | CHAPTER 13 Projecting Income Taxes In this chapter you learn the fundamentals of income tax and how to prepare an income tax projection. Income taxes are a significant expense to the company and need to be included in the company’s annual cash flow projection. Having an unexpected income tax bill can reduce the funds available for use on construction projects to a dangerously low level. The text that follows covers the basic principles of corporate and personal income tax. The purpose of this chapter is to give the reader a basic understanding of principles of income tax, not turn the reader into a tax professional. Because income tax law is constantly changing, the general principles of income tax as they apply to construction companies are discussed. Also, there are many exceptions to these rules that are beyond the scope of this chapter. For these reasons, the reader is advised to consult with a tax professional for the current regulations when dealing with income taxes. CORPORATE VERSUS PERSONAL INCOME TAX Income taxes can be separated into two distant classes: corporate income tax and personal income tax. Each class has its own set of rules. Traditional corporations— also known as C corporations—and some partnerships pay income taxes at the corporate level. When these companies pay dividends or distribute funds to their shareholders, the shareholders pay personal income taxes on the dividends and distributed funds. In this chapter, the term corporation is used to refer to C corporations and partnerships that pay corporate income tax. Limited liability companies (LLCs), S corporations, most partnerships, and sole proprietorships pass their taxable income through to their shareholders, which in turn pay personal income taxes on this income. As well, the term individual is used to refer to the shareholders who pay personal income tax on gains for limited liability companies, S corporations, partnerships, and sole proprietorships that .
