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Business Tax Help – Understanding the Basics of Tax

A tax is any mandatory annual financial payment or any sort of tax levied on an individual by a governmental agency in order to fund various public expenditures and government spending. Failure to pay, or evasion of or obstruction of tax, is legally punishable by law. In the United States, tax laws are generally based on income tax. Income tax is the most common form of tax. The tax system in the United States is administered through individual income tax returns and payroll taxes paid to the government. Individual tax brackets range from low rates of 10 percent to high rates of forty percent.

Corporate tax rates are levied by state governments, although federal tax laws cover many states. Corporate tax rates are typically lower than personal income tax, primarily because corporations usually have larger operations and turnover. Many businesses owe revenue to both state and federal tax systems. Businesses may also be required to file state income tax returns. When a business owns property, such as office buildings and equipment, and leases or sub-leases property to others, it is billed for its usage, rather than only its income.

Taxation is typically based on ability to pay. Taxation is considered progressive, meaning that the amount of tax an individual or business must pay increases each year, as income increases. Some of the factors considered by the Internal Revenue Service in assigning tax liability are, the age of the taxpayer, filing status, net worth, and tax liens. Taxpayers can reduce their tax liability by paying deductible expenses.

Sales tax is levied on items purchased, as well as income from rental and business activity that generates income. It is calculated by adding sales price plus sales tax, any exempt price, and local sales tax. Many countries levy a property tax on real estate owned by individuals or businesses. Real estate is generally regarded as one of the key components of wealth, because properties that are physically valuable usually sell for more than those that are not worth very much.

There are four major categories of indirect tax: income taxes, capital gains tax, import duties, and tariffs. In U.S., these indirect taxes account for about 17% of the gross domestic product. These include the following: Franchise Excise Tax, Franchise Income Tax, Imports, and Tariffs. The Franchise Excise Tax is levied on sales of new products, while Tariffs and Imports are levied on goods that enter the country.)

Although most direct taxes such as income tax, corporate tax, and sales tax are implemented and controlled at the federal level, states also have their own individual tax systems. Most states have a broad collection of indirect taxes including inheritance taxes, property taxes, vehicle registration taxes, and personal taxes. In many cases, state tax rates are higher than federal tax rates. States also have separate licensing taxes that are often higher than the national tax rate. Therefore, it is very important for businesses to understand what kind of taxes they will be required to pay in a particular state.

Author

Peter Conley

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