Complete Guide To Corporate Finance

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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


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RELATED TERMS
  1. Taxes

    An involuntary fee levied on corporations or individuals that ...
  2. Direct Tax

    A tax that is paid directly by an individual or organization ...
  3. Payroll Tax

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

    The percentage at which an individual or corporation is taxed. ...
  5. Effective Tax Rate

    The average rate at which an individual or corporation is taxed. ...
  6. Federal Income Tax

    A tax levied by the United States Internal Revenue Service (IRS) ...
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  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. Who first came up with the idea of a progressive tax?

    Learn how the progressive income tax system developed in the United States and became the federal government's primary revenue ... Read Answer >>
  4. What are the best and worst states to pay taxes in?

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  5. What is the difference between income tax and capital gains tax?

    Understand the difference between a person's income tax and his capital gains tax. Learn when a person needs to pay taxes ... Read Answer >>
  6. What are the differences between regressive, proportional and progressive taxes?

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