Complete Guide To Corporate Finance

AAA

Taxes - Types Of Taxes

A business must pay a variety of taxes based on the company's physical location, ownership structure and nature of the business. Business taxes can have a huge impact on the profitability of businesses and the amount of business investment. Taxation is a very important factor in the financial investment decision-making process because a lower tax burden allows the company to lower prices or generate higher revenue, which can then be paid out in wages, salaries and/or dividends. Business may be required to remit the following types of taxes:

Federal Income Tax: A tax levied by a national government on annual income.

State and/or Local Income Tax: A tax levied by a state or local government on annual income. Not all states have implemented state level income taxes.


Payroll Tax: A tax an employer withholds and/or pays on behalf of their employees based on the wage or salary of the employee. In most countries, including the United States, both state and federal authorities collect some form of payroll tax. In the United States, Medicare and Social Security, also called FICA, make up the payroll tax.


Unemployment Tax: A federal tax that is allocated to state unemployment agencies to fund unemployment assistance for laid-off workers.

Sales Tax: A tax imposed by the government at the point of sale on retail goods and services. It is collected by the retailer and passed on to the state. Sales tax is based on a percentage of the selling prices of the goods and services and is set by the state. Technically, consumers pay sales taxes, but effectively, business pay them since the tax increases consumers costs and causes them to buy less.

Foreign Tax: Income taxes paid to a foreign government on income earned in that country.

Value-Added Tax: A national sales tax collected at each stage of production or consumption of a good. Depending on the political climate, the taxing authority often exempts certain necessary living items, such as food and medicine from the tax.

Types Of Credits


Related Articles
  1. Taxes

    Do Tax Cuts Stimulate The Economy?

    Learn the logic behind the belief that reducing government income benefits everyone.
  2. Taxes

    3 Federal Income Tax Facts You Didn't Know

    Learn about three federal income tax facts that most Americans may not know from one of the most trusted financial resources on the Web.
  3. Taxes

    Understanding Income Tax

    Income tax is a levy many governments place on revenue of entities within their jurisdiction.
  4. Taxes

    Why America's Taxes Are Too Low

    The solution to America's economic woes may not be in lowering taxes further, but may, in fact, lie in increasing them.
  5. Taxes

    Internet Sales Tax Vs. Brick & Mortar Sales Tax

    Learn about the differences between sales taxes and Internet sales taxes, and the goods and services that typically incur each type of tax.
  6. Economics

    Comparing Regressive, Proportional and Progressive Taxes

    Learn about the basic differences between three common tax systems.
  7. Taxes

    U.S. Sales Tax Rates Hit Record High

    Shopping blues: Top tax 12%. Chicago's 10.25% highest big-city rate. More Internet tax fights loom.
  8. Taxes

    Tax Haven Vs. Tax Shelters: Is There a Difference?

    Learn about the difference between tax havens and tax shelters, and how both are used to reduce tax liability or avoid paying taxes altogether.
  9. Taxes

    Explaining Progressive Tax

    A progressive tax is a levy in a tax system where the tax rate increases as the taxable base increases.
  10. Taxes

    Small Business Tax Obligations: Payroll Taxes

    Don't leave it up to your accountant - owners are ultimately responsible for fulfilling tax obligations.
RELATED TERMS
  1. Tax Rate

    The percentage at which an individual or corporation is taxed. ...
  2. Payroll Tax

    Tax an employer withholds and/or pays on behalf of their employees ...
  3. Effective Tax Rate

    The average rate at which an individual or corporation is taxed. ...
  4. IRS Publication 514

    A document published by the Internal Revenue Service that provides ...
  5. Net Of Tax

    An accounting figure that has been adjusted for the effects of ...
  6. Consumption Tax

    A tax on the purchase of a good or service. Consumption taxes ...
RELATED FAQS
  1. What is the difference between a state income tax and a federal income tax?

    Learn the difference between state income tax and federal income tax based on tax rates, deductions, tax credits and taxable ... Read Answer >>
  2. How does the marginal tax rate system work?

    The marginal tax rate is the rate of tax that income earners incur on each additional dollar of income. As the marginal tax ... Read Answer >>
  3. What are the differences between regressive, proportional and progressive taxes?

    Understand the differences between the most common tax systems including regressive taxes, proportional taxes and progressive ... Read Answer >>
  4. How does the effective tax rate for an individual differ from that of a corporation?

    Read about the effective tax rate for individuals when compared with the effective tax rate for corporations, including how ... Read Answer >>
  5. How can I lower my effective tax rate without lowering my income?

    Discover how to reduce your effective tax rate without losing income by maximizing adjustments and deductions, earning tax-free ... Read Answer >>
  6. How are effective tax rates calculated from income statements?

    Learn how to read an income statement and how to find the information necessary to calculate a company's effective income ... Read Answer >>
Hot Definitions
  1. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  2. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  3. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  4. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  5. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  6. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
Trading Center