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Tax Accounting: A Complete Overview

By Steve Smith

The information presented here is true and accurate as of the date of publication. DeVry’s programmatic offerings and their accreditations are subject to change. Please refer to the current academic catalog for details.


April 18, 2024

5 min read


If you’ve gained any experience in business operations or finance or plan to pursue an accounting or finance career, you’ve no doubt heard the term “tax accounting” a time or two. Have you  wondered what sets this type of accounting apart from the rest of the field? You may have also wondered about the importance of tax accounting for businesses and individuals, and what type of education or training is required for someone aspiring to specialize in this area of the accounting profession.


In this discussion, we will provide an overview of tax accounting, describing how tax accounting works, types of tax accounting and the importance of tax accounting as it applies to people and business entities. We will also talk about how to become a tax accountant, touching on educational requirements, certifications and ways to gain experience that could lead to entry-level employment in the field.

What is Tax Accounting?

First things first, what is tax accounting? 

In the United States, taxes are the largest source of revenue to fund the federal budget, which as of 2020 hovered around $7 trillion. The three major types of taxes are income taxes paid by individuals, payroll taxes paid by workers and their employers, and corporate income taxes paid by businesses.

Tax accounting – the means of accounting for tax purposes – is a structure of accounting methods focused on taxes and governed by the complex Internal Revenue Code, which is often referred to as the “tax code.” The purpose of tax accounting as a subset of the accounting field is to determine how much a taxpayer, which could be a person or business entity, owes in taxes, following the provisions of the tax code. The tax accountant’s work also involves helping people and entities minimize their tax liability through the use of deductions that qualify under provisions of the tax code and reduce their taxable income. A few examples of common tax deductions for individuals include charitable donations, child tax credits, medical expenses and interest on student loans and mortgages. 

How Does Tax Accounting Work?

Tax accountants determine a company’s total taxable income – its annual income after expenses – and then go to work determining how to minimize tax liability while following the law as outlined in the tax code. They do so by considering elements of tax accounting that include profit and loss, liabilities and the accounting method used by the organization.

  • Profit and loss: A profit and loss statement refers to the revenue, costs and expenses of a company over a given time period. It often shows the amount of income the company received before taxes, helping the tax accountant to determine what profits are taxable and what liabilities exist for the company. 

  • Liabilities: Liabilities are classified in two ways. Current-year liabilities refer to short-term obligations such as outstanding bills the company needs to pay prior to the end of the year, and future-year liabilities refer to long-term financial commitments.

  • Accounting method: The IRS requires businesses to use one of two different accounting methods – cash or accrual. Using cash-based accounting, the company records revenue in the period in which it is actually received. So if it were to receive an order for products it sells late in the year but no cash changed hands until after the first of the following year, the revenue would be recorded – and reported in tax filings – in the following year. Using the accrual basis method, companies can record revenues and expenses when they occur, rather than when the money actually is exchanged. In the previous example, the company would record the transaction right away, in the current fiscal year.

Types of Tax Accounting

Different types of tax accounting correspond to the types of taxable entities that use the process. 

In tax accounting for individual taxpayers, the process focuses only on items that affect the individual’s tax liability, such as income, qualifying tax deductions, investment gains or losses and other transactions. This makes the amount and complexity of the information involved more manageable than in a business tax preparation situation. While individuals can use tax accountants, they are not required by law to hire a tax expert and many taxpayers file themselves, often using tax preparation and filing software.

The tax accounting scenario for businesses tends to be substantially different. More information regarding the entity’s revenue and expenses must be processed and analyzed to determine a company’s tax liability. More complexity is involved in the area of the company’s outgoing funds directed at fulfilling various obligations. There may be a variety of tax credits and deductions that certain businesses can use to reduce their corporate taxes, like clean energy and vehicle credits, energy-efficient commercial building deductions or employer-provided child care credits. 

Even organizations that are tax-exempt under the IRS code utilize tax accounting. While this may seem odd, the fact is nonprofits must file an annual tax return like everyone else. Even if they don’t actually pay taxes, they’re required to provide detailed information about grants or donations they’ve received and how they’ve used this income during the tax period. This helps the IRS determine whether they’ve lived up to their obligations and governed themselves properly as a tax-exempt entity.

Why Is Tax Accounting Important?

The practice and methods of tax accounting are important in a few ways. Because it’s important for businesses to comply with the provisions of the IRS tax code to avoid fines and penalties, they hire accounting professionals with specialized training and knowledge in this area. On the flip-side of the same coin, businesses want to be able to keep as much of the profits they’ve made, so they can return value to owners or shareholders, or have more funds available to reinvest back into the business. Capable tax accountants help them find tax credits and incentives, devise tax planning strategies and look for ways to reduce tax liability without running afoul of tax laws.

Tax accounting methods are used by Certified Public Accountants (CPAs), internal auditors, tax accountants and forensic accountants. Each of these accounting professionals plays a role, in some cases a highly specialized one, in the tax accounting process. CPAs, as public accountants, may take on tax preparation duties for individuals and businesses alike. Forensic accountants use tax accounting methods to investigate financial statements and other records as they work for a government agency or private law firm. Internal auditors use similar methods to examine a company’s finances from the inside, to ensure regulatory compliance and uncover any signs of internal wrongdoing, such as fraud or embezzlement. 

How to Become a Tax Accountant

As in many other occupations, the journey toward a career as a tax accountant begins with proper education, and that means earning a degree. According to the U.S. Bureau of Labor Statistics, accountants and auditors typically need a bachelor’s degree in accounting or business to enter the occupation, and some employers may prefer applicants who have a master’s degree.

Growth projected on a national level. Local growth will vary by location. BLS projections are not specific to DeVry University students or graduates and may include earners at all stages of their career and not just entry level.

At DeVry, our online Bachelor’s Degree in Accounting is designed with a robust curriculum of core business courses. This gives you a strong foundation in accounting and economics, and a thorough understanding of business technology, government regulations, business administration and management. Accounting courses cover topics like federal income taxation, accounting information systems, federal tax accounting, auditing and financial accounting.

Want to go farther? You may be able to boost your professional competency and expand your career options by pursuing accounting certifications like the CPA (Certified Public Accountant) or CMA (Certified Management Accountant) certification.2  Here at DeVry and our Keller Graduate School of Management, our Graduate Certificate in Accounting Certification Preparation is designed for students who’ve completed an undergraduate specialization in accounting or finance and want to advance in their field by earning these important credentials. 

As a tax accountant, do you also have to be a CPA? Individuals and businesses can work with licensed tax preparers who are not CPAs, but CPAs tend to have broader financial knowledge and potentially a more holistic understanding of business operations. For this reason, businesses often prefer to work with CPAs to prepare and file their tax returns. It’s best to research the specific requirements in your state for the required certification or license to work as a tax accountant.

After completing your formal education or while still in school, look for ways to gain the experience that can lead to an entry-level job in tax accounting. Some tactics to consider include looking for an internship (some are actually paid), networking and finding a mentor. Consider volunteering for a local nonprofit organization or fulfilling the treasurer’s duties at a local club. These options are good resume builders because they sharpen your skills while supporting charitable causes. 

Here at DeVry and Keller, our commitment to supporting your professional goals doesn’t stop on graduation day. Resume writing, interview preparation, career advising, one-to-one coaching and personal branding are just a few of the career resources we offer to help keep you on track and stand out to employers.

Begin Your Accounting Career Journey With DeVry

If you have your sights set on a career in accounting, DeVry can help. Begin your journey with our online Bachelor’s Degree in Accounting and gain the foundational skills that you can apply to accounting roles in finance, management, entertainment, operations management and other industries. Coursework in this bachelor’s degree program explores topics like critical thinking, financial accounting and auditing, federal income taxation and more.  

With elements of Becker Professional Education’s industry-leading content, our Bachelor’s in Accounting program gives you the opportunity to gain exposure to today’s relevant accounting principles.

Are you thinking it will take too long to earn your bachelor’s degree? Here at DeVry, students choose the schedule that best fits their goals and commitments. You can earn your Bachelor’s Degree in Accounting in as few as 2 years and 8 months* on an accelerated schedule, or follow a  normal schedule and complete the program in 4 years.**

Online learning with DeVry can help you balance your commitment to education with work, family and other aspects of your busy life. Classes start soon. Let’s talk about getting you enrolled in the program that fits your personal and professional goals.


*Minimum schedule does not include breaks and assumes 3 semesters of year-round, full-time enrollment in 14-16 credit hours a semester per 12-month period.

**Normal schedule includes breaks and assumes 2 semesters of enrollment in 14-16 credit hours per semester per 12-month period.

1 Growth projected on a national level. Local growth will vary by location. BLS projections are not specific to DeVry University students or graduates and may include earners at all stages of their career and not just entry level.

2 Credits and degrees earned from this institution do not automatically qualify the holder to participate in professional licensing exams to practice certain professions. Persons interested in practicing a regulated profession must contact the appropriate state regulatory agency for their field of interest. For instance, typically 150 credit hours or education are required to meet state regulatory agency education requirements for CPA licensure. Coursework may qualify for credit towards the State Board of Accountancy requirements. However, it is the student’s responsibility to contact the state board of accountancy for the jurisdiction in which they are applying to determine whether they have completed the appropriate credit hours and coursework to qualify to take the CPA exam. Employees of DeVry University and its Keller Graduate School of Management are not in a position to determine an individual’s eligibility to take the CPA exam or satisfy licensing.

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