Business Taxation: Everything You Need to Know
Business taxation is important to understand. All taxes, including business activity taxes, are “people taxes” and have an economic impact.3 min read
Business taxation is important to understand. All taxes, including business activity taxes, are “people taxes” and have an economic impact. Since only people can pay taxes, the tax burden ultimately falls on various groups of people. Business taxes include corporate franchise tax, employment tax, excise tax, gross receipts tax, and value added tax, VAT.
How Are Applicable Taxes Determined?
All firms must pay certain taxes, including:
- Income
- Property
- Sales tax
The type of business a person owns will determine additional taxes they may pay. For example, insurance, mining and petroleum extraction companies are required to pay additional taxes specifically related to their industries. It is not uncommon for firms to pay a fee for doing business in a particular jurisdiction.
What Is a Value-Added Tax?
A value-added tax, VAT, also referred to as a goods and service tax is a consumption tax that is placed or assessed incrementally. The amount is based on the increase in value of the good or service at each stage, from production to point of sale. It avoids the double taxation of a direct sales tax because the producer or distributor does not get burdened with the tax. The end consumer ultimately catches the full brunt of the tax.
Choosing the Returns You Must File
There are several return types and the one you file depends on your business structure. Sole proprietors and any other business structure with a pass-through structure file Form 1040. A pass-through structure allows owners to report business and expenses as part of their personal tax return.
If you operate as a C corporation you will submit a copy of the 1120 Form and S corporations will submit the 1120s Form. Both nonprofit organizations and general partnerships will use information returns. Nonprofit organizations will use the 990 Form and general partnerships will use 1065 Form. Business-related returns will vary and may include sales and usage tax, payroll taxes and other specific state and local taxes. Also, the Form 1040-ES will include the estimated tax payments.