Sales and Financing DB Essay Example | Topics and Well Written Essays - 750 words

Sales and Financing DB - Essay Example As Jim’s company has recorded a high profit during the year, the tax will naturally increase at the end of the financial year. However the large purchase of inventory during the last week of December can reduce taxes as the total liabilities in the balance sheet will offset the profit earned during the year. It is perfectly legal, moral and ethical to do everything one can within the law to minimize one’s taxes as per the Tax laws. One of the most important aspects about tax reduction strategy is that a tax dollar deferred is a tax dollar saved. By legally delaying the payment of taxes until a later date, Jim can save money because he has the use of that money until he pays it to authorities next year. The taxation authorities allow one to write off all or a portion of the cost as an expense against one’s income in the current year. That will reduce the profits and thereby the tax liability on those profits. In a LIFO pattern, when one purchases inventory and how it is accounted for can affect one’s taxes. Any procedures undertaken within legal framework to reduce one’s taxes are considered perfectly ethical within the law, however manipulative they might seem otherwise. Hence Jim need not worry on this aspect and should go ahead with the end of financial year addition to his inventory. From the given facts it is clear that Lucy Shafer is running a successful dog-breeding business as she is thinking of expansion in the first place. The loan from her uncle seems quite liberal as she does not have to make any principal payments for five years which is a pretty long time and the business expansion, if successful, can easily help her to pay off the loan from her relative. Under these circumstances her decision not to disclose this information to the bank is a calculated risk which she can take. The effect of showing the loan as contributed capital will