Taxation is one of the most important aspects of taxation. It directly affects your freedom of action as well as your income and savings. Basically, there are two types of taxation: income tax and corporate tax. A tax is any monetary payment or other kind of levy imposed on an individual or a corporation by a government agency in order to finance various public projects and government spending. A tax evasion or refusal to pay is punishable by law.
Income tax is different from corporate tax because the latter taxes profits earned by a corporation as against the salary of the corporation’s employees. Thus, the profit made by a business is not exempt from taxation. A profit made by a corporation is taxable to the extent that the difference between the total assets of the business and the value of its outstanding stock is greater than a prescribed limit. In cases where the value of the stock does not exceed the prescribed limit, then only the earnings of the corporation are subjected to tax.
Corporate tax, however, does not distinguish between individual income taxes earned by an individual and those earned by a corporation. Corporations can choose to either withhold income taxes or pay them directly out. The latter option, however, means paying the corporate tax on behalf of the corporation itself while taking responsibility for the collection. Every corporate citizen is obliged to file an annual return and pay the corresponding taxes. On the other hand, an individual taxpayer, who is required to file his or her personal income tax returns, is not personally liable for the payment of any particular tax.
One of the two types of taxation is progressive taxation. Under this system, direct taxes are collected from the person or entity that has a direct ownership or possession of the property which is subject of tax. The amount of tax depends on the basis for which the tax is computed. Direct taxes include Goods and Services Tax (GST), Excise Tax and Sales Tax.
On the other hand, proportional taxation is levied on the assets in a corporation and the earnings and profits thereof and is generally levied on corporations and unincorporated businesses alike. Proportional taxes are collected by the corporate authorities in proportion to the size and revenues of the corporation. Examples of proportional taxes include estate taxes, corporate taxes and income taxes levied on the personal property of an individual. The U.S. state department issues licenses, permits, and identification cards for corporations, but they are not subject to the corporate income tax imposed by the united states congress.
Most of the people consider that all indirect taxes are levied against the income of a business entity itself. This is untrue and misleading. Majority of indirect taxes such as sales taxes, property taxes and personal income taxes are passed on to the customers directly. Thus, indirect taxes on businesses are often times much less in amount than their direct counterparts. The best way to avoid paying unnecessary amounts of corporate or individual income tax rates is by ensuring that all expenses, receipts and payment documents are properly scrutinized and processed prior to the issuance of any payment.