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How Foresight's models calculate corporate income taxes and VAT.

How best to handle your corporate taxes varies widely by form of corporate organization, geographical location, size of your business. Here's an overview on how the Foresight models calculate taxes, and how you can approach your tax responsibilities in detail.

Corporate Income Taxes

Prebuilt into the model is a fairly robust section on accuring and paying taxes to account for the impact of corporate taxes on the three statements.

  • The Foresight financial models calculate overall corporate taxes after earnings before taxes (EBT), using a simple percentage monthly assumption entered on Get Started, and calculates tax responsibility on a monthly basis.
  • It assumes taxes are only owed once all tax loss carry-forwards are extinguished, meaning taxes are zero until cumulative net income is greater than zero.
  • The prebuilt structure handles calculating tax accruals and disbursements, and you can select to disburse taxes on a monthly, quarterly, or annual schedule (it assumes a one month lag in the actual disbursement of the taxes from the calculation of the responsibility). [1]
  • It will automatically calculate any reductions in tax liabilities on an annual basis, if the taxes paid during the previous fiscal year are less than the annual tax requirement.
  • Overall, the calculation of taxes is a simplification to cover all federal, state, and local taxes based on net profits of the business.

If you are entering your actual financial results into the model through Forecast, the model will use the actual taxes from your financials instead of the forecasted taxes.

Sales Taxes

Sales taxes, import duties, usage taxes, and other taxes tied to providing your products and services are treated as costs of doing business, thus part of SG&A, COGS, or other expense, depending on your accounting treatment, and they are added the same as any expense line.

Value-Added Tax (VAT)

Value-added tax, or VAT, is handled in the optional Accruals section on the Forecast sheet. VAT is not a cost of doing business and should not show up on an income statement, but will show up on a balance sheet to handle the accrual and payment of VAT over time, so the goal of the structure is to capture the cash impact of VAT. The prebuilt structure uses a simple calculation of VAT based on a percentage of Revenues (input on Get Started), and provides the structure for you to create your own forecast of VAT accruals and deductions. The model will calculate VAT disbursals on a monthly, quarterly, or annual schedule based on the dropdown selection on the VAT section in Get Started. This automatically feeds into the VAT line on the balance sheet and the cash changes flow through changes in working capital in the statement of cash flows. You may need to change this for your particular business.

Common Modifications

Any custom modifications to corporate taxes can be handled by creating your own custom calculation and feed that into the expenses section on the Forecast sheet, and selecting taxes in the category dropdown.

Obviously, this is a simplification of how to calculate your corporate tax responsibilities, and your situation may vary from this default treatment, and I highly advise you work with a licensed tax professional to calculate your actual tax responsibilities outside of the Foresight forecast model.

Tax Practicalities

When it comes to actually calculating and preparing taxes in the real world, things get more complicated.

Here's a few things to consider:

  • Tax deadlines. There are a number of deadlines and forms required, and it varies by location and form of corporate organization. For the US, Bench has a good list of tax deadlines ›
  • Tax calculations. Here's another guide for the US from Bench on how to calculate your taxes ›
  • Working with tax professionals. Handling and filing taxes can be difficult for many business owners, and using professional CFOs [2], bookkeepers, and accountants can be a big help in handling this important part of managing your business.

I'm happy to offer recommendations of services upon request. Consider using services like Hammock to manage your bookkeeping and financial reporting, or Bench or Pilot to handle accounting, financials and taxes. Bench also offers a service for taxes called BenchTax, which is provided by TaxFyle (and you can also work directly with TaxFyle). More providers are also listed at Tools

Questions or recommendations, ask anytime.

  1. This description reflects a modification made in v4.5.2 and above of the Standard Model and its variants. ↩︎

  2. Related, When do I need a CFO? ↩︎