Effective
The term effective tax rate has significantly different meanings when used in different contexts or by different sources. Generally it means some amount of tax divided by some amount of income or other tax base. In International Accounting Standard 12, it is defined as income tax expense or benefit for accounting purposes divided by accounting profit. In Generally Accepted Accounting Principles (United States), the term is used in official guidance only with respect to determining income tax expense for interim (e.g., quarterly) periods by multiplying accounting income by an "estimated annual effective tax rate," the definition of which rate varies depending on the reporting entity's circumstances. In U.S. income tax law, the term is used in relation to determining whether a foreign income tax on specific types of income exceeds a certain percentage of U.S. tax that would apply on such income if U.S. tax had been applicable to the income. The popular press, Congressional Budget Office, and various think tanks have used the term to mean varying measures of tax divided by varying measures of income, with little consistency in definition. An effective tax rate may incorporate econometric, estimated, or assumed adjustments to actual data, or may be based entirely on assumptions or simulations.
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Famous quotes containing the word effective:
“The only effective way to help well-intentioned, intelligent persons to do the best they can in raising children is to encourage and guide them always to do their own thinking in their attempts at understanding and dealing with child-rearing situations and problems, and not to rely blindly on the opinions of others.”
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“The general fact is that the most effective way of utilizing human energy is through an organized rivalry, which by specialization and social control is, at the same time, organized co-operation.”
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