25 Essential Business Taxation Terms
Taxation is an inevitable part of running a business. It is important to have a good understanding of taxation terms and concepts to manage your tax obligations effectively. In this document, we will discuss 25 essential business taxation terms that every business owner should know.
The legal process of collecting money from individuals and businesses by a government in order to fund public services and infrastructure.
Income Tax –
A direct tax that is levied on the income of individuals or businesses. The amount of tax owed is based on the individual or business’s taxable income after deductions and exemptions have been applied.
Capital Gains Tax –
A tax on the profits made from selling assets such as stocks, real estate, or businesses. The amount of tax owed is based on the difference between the purchase price and selling price of the asset.
Corporate Tax –
A direct tax that is levied on the income of corporations. The amount of tax owed is based on the corporation’s taxable income after deductions and exemptions have been applied.
Tax Deduction –
A reduction in taxable income that lowers the amount of tax owed. This can include business expenses, charitable donations, and retirement contributions.
Tax Credit –
A dollar-for-dollar reduction in the amount of tax owed. This is different from a deduction as it directly reduces the tax liability instead of just lowering taxable income.
Taxable Income –
The amount of income that is subject to taxation after deductions and exemptions have been applied.
An amount of money that can be deducted from taxable income for certain individuals, such as dependents or disabled persons.
An individual who relies on another person for financial support, such as a child or elderly parent. Taxpayers can claim dependents on their tax return for additional exemptions.
Tax Bracket –
A range of income levels that are taxed at a specific rate. As income increases, individuals and businesses move into higher tax brackets.
Progressive Tax System –
A taxation system where the tax rate increases as income increases. This is meant to create a fair distribution of taxes among individuals and businesses.
Regressive Tax System –
A taxation system where the tax rate decreases as income increases. This can lead to a higher burden on lower-income individuals and businesses.
Flat Tax –
A single tax rate applied to all income levels. This type of taxation is often seen as more simple and fair, but it may not take into account differences in income levels.
Tax Audit –
A review of an individual or business’s tax return by the government to ensure accuracy and compliance with tax laws.
Itemized Deductions –
Specific expenses that can be deducted from taxable income, such as mortgage interest, medical expenses, and state and local taxes.
Standard Deduction –
A fixed deduction amount that can be taken by individuals or businesses instead of itemizing deductions. This is meant to simplify the tax filing process.
Tax Withholding –
The process in which employers withhold a portion of an employee’s paycheck to cover their income tax liability.
Estimated Tax –
Quarterly payments made by self-employed individuals and businesses to cover their estimated tax liability for the year.
Tax Return –
A form that individuals and businesses must file to report their income, deductions, and tax liability for the previous year.
Taxable Year –
The 12-month period in which individuals or businesses must report their income and pay taxes. This is usually based on a calendar year or fiscal year.
Tax Extension –
An extension granted by the government for individuals or businesses to file their tax return by a later date.
Tax Evasion –
The illegal act of avoiding paying taxes by intentionally underreporting income or overstating deductions.
Tax Avoidance –
The legal act of minimizing tax liability through strategic financial planning and taking advantage of deductions and exemptions.
Tax Shelter –
An investment or business structure used to reduce taxable income and avoid paying taxes.
Tax Treaty –
An agreement between two countries that determines how their citizens will be taxed on income earned in the other country. This is meant to prevent double taxation.
Inheritance Tax –
A tax imposed on the transfer of assets from a deceased person to their heirs or beneficiaries. The amount of tax owed is based on the value of the assets transferred.
So there you have it – 25 essential business taxation terms that every entrepreneur should know. These may seem daunting at first, but with a little bit of research and understanding, they can become your best friends when it comes to keeping your business’s finances in check.