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To: Hostage

The issue of whether income taxes are built into prices is not answered by whether you find a line-item for an actual expense in the company's books. The point is that an estimate of the income tax burden will be a consideration in planning and setting prices. Obviously, it is, and so it is treated exactly like any other expense for planning prices -- even though it is only an estimate.

The calculation of estimated taxes is really not that complicated, and it is included before the exact taxes are known. It is done t determine what revenue targets the company needs to meet to satisfy all needs -- non-income-tax expenses, net profit, and tax expenses.

Non-tax expenses : 900
Net Profit : 65
Taxable profit : 65/0.65 = 100
Revenue Target: 1000

If pressured to achieve Net Profit of 150, the calc would change to:

Non-tax expenses : 900
Net Profit : 150
Taxable profit : 150/0.65 = 231
Revenue Target: 1131

If the tax rate is lowered to 15%, then a company would immediately know that it could adjust its revenue target to 1076 (900+(150/0.85)) and still satisfy expenses and desired net profit.




49 posted on 12/14/2006 9:51:32 AM PST by Kellis91789 (Sarcasm should never need a tag.)
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To: Kellis91789

Sorry to say you wouldn't pass an accounting class.

Profit is always the target, not revenue. A corporation can easily attain revenue goals by cutting prices and increasing sales volume.

Or they can let revenue fall and simultaneously cut costs, and achieve the same profit.

And since corporate income taxes are a fixed percentage of profit, it is a quantity that is known ahead of time. That's why corporations focus on EBIT and EBITDA.

So you should now understand that corporate ***income*** taxes are not 'passed on' in the prices to the consumer. They are taken from the ***profit***, the difference between revenues and expenses.

The business in your example could slash their revenue by slashing their prices and as long as they also slash costs by an equal amount, then the profit is the same.

Profit is a difference, independent of prices alone, and independent of costs alone, but dependent on the two together.

And finally accept that corporate income taxes are entirely dependent on ***profit***, and not prices alone.

This should be more than sufficient for explanation but if you insist on continuing to argue "revenue" targets, then I'm sorry but I can't help you. IOW I won't be responding.


50 posted on 12/14/2006 2:12:43 PM PST by Hostage
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To: Kellis91789
As a good friend of mine (now departed this world) used to say "You can lead a horse to water but you can't make him THINK!"
51 posted on 12/14/2006 3:56:33 PM PST by Bigun (IRS sucks @getridof it.com)
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