Business taxation refers to the various taxes that governments impose on commercial activities

and entities to fund public services and regulate the economy. The specific taxes a business must
pay depend heavily on its legal structure, location, industry, and whether it has employees or
owns property.

Main Types of Business Taxes

While the exact names and requirements vary by country and jurisdiction, most business taxes
fall into the following general categories:

1. Income-Based Taxes

These taxes are levied on a business's net earnings (profit).

 Corporate Tax (or Corporation Tax): A tax imposed on the net profits of a
corporation (a legal entity separate from its owners). The corporation files its own tax
return and pays tax at the corporate level.
 Income Tax (for Pass-Through Entities): The income of certain business structures,
known as pass-through entities (like Sole Proprietorships, Partnerships, and S
Corporations), is not taxed at the business level. Instead, the profits and losses are
"passed through" to the owners' personal tax returns and taxed as individual income.
 Estimated Taxes: Payments of income tax and, for the self-employed, self-employment
tax that are made periodically (e.g., quarterly) throughout the year as income is earned,
rather than waiting until the annual tax return is filed.

2. Employment and Payroll Taxes

These taxes are related to having employees. Employers are typically responsible for
withholding taxes from employee wages and paying their own matching portion.

 Self-Employment Tax: A tax primarily for individuals who work for themselves (e.g.,
sole proprietors) to cover their contribution to Social Security and Medicare.
 Employment/Payroll Taxes: Taxes employers must withhold or pay based on employee
wages, which typically include:
o Social Security and Medicare Taxes (or National Insurance Contributions in the
UK).
o Federal/State Income Tax Withholding (deducted from the employee's pay).
o Federal/State Unemployment Taxes (FUTA/SUTA).

3. Sales and Consumption Taxes

These taxes are collected by the business at the point of sale and then remitted to the
government.
  Sales Tax: A tax on the sale of goods and some services, typically collected by state and
local governments.
 Value-Added Tax (VAT): A consumption tax in many countries outside the US that is
levied on the value added to a product or service at each stage of production and
distribution.
 Excise Tax: A tax imposed on the sale or use of specific goods and services, such as fuel,
alcohol, or tobacco.

4. Property and Asset Taxes

These taxes are based on the value of business assets.

 Business Rates (or Property Tax): A tax imposed on the value of commercial property
and land.
 Capital Gains Tax (CGT): A tax on the profit (gain) made from selling or disposing of a
business asset that has increased in value.

Tax Implications by Business Structure

A business's legal structure fundamentally dictates how its income is taxed.

Business
Tax Method Key Tax Forms/Concepts Liability
Structure
Income reported on personal return Unlimited
Sole Pass-Through (Taxed
(e.g., Schedule C of Form 1040 in the Personal
Proprietorship on personal return)
US). Pays Self-Employment Tax. Liability
Files an informational return (e.g., Partners
Pass-Through Form 1065 in the US); partners receive generally have
Partnership (Partners taxed on a Schedule K-1 and pay tax on their unlimited
their share) individual returns. Partners pay Self- personal
Employment Tax. liability.
Files Form 1120S; shareholders
receive a Schedule K-1 and pay tax on Owners are
Pass-Through
their individual returns. Owners who generally not
S Corporation (Shareholders taxed on
work for the company must pay personally
their share)
themselves a reasonable salary subject liable.
to payroll taxes.
C Corporation Corporate Tax Pays tax on its profits (net income) Owners are
(Taxed at the entity using corporate tax forms (e.g., Form generally not
level) 1120 in the US). Subject to Double personally
Taxation (corporate profits are taxed, liable.
and then shareholders' dividends from
those profits are taxed again as
Business
Tax Method Key Tax Forms/Concepts Liability
Structure
personal income).
Flexible (Can choose
The chosen tax classification dictates Owners are
to be taxed as a Sole
Limited Liability the filing requirements. Members generally not
Proprietorship,
Company (LLC) generally pay Self-Employment Tax personally
Partnership, S Corp, or
on their earnings. liable.
C Corp)
Export to Sheets

Key Concepts in Corporate Taxation

Corporate taxation, particularly for large companies and multinational enterprises, involves
several complex concepts:

 Taxable Income: A company's revenue less all allowable deductions (costs of goods
sold, operating expenses, depreciation, etc.). This is the amount the corporate tax rate is
applied to.
 Tax Deductions and Credits:
o Deductions reduce the amount of taxable income (e.g., rent, wages).
o Credits directly reduce the amount of tax owed (e.g., R&D credits).
 Worldwide vs. Territorial Tax Systems: Refers to how a country taxes the foreign-
source income of its domestic corporations. A worldwide system taxes all income
regardless of where it's earned, while a territorial system primarily taxes income earned
within the country's borders.
 Transfer Pricing: The setting of prices for transactions between associated companies
that are part of the same multinational group (e.g., a parent company selling goods to a
foreign subsidiary). This is heavily scrutinized by tax authorities to prevent Profit
Shifting to low-tax jurisdictions.

Reference: Internal Revenue Service (IRS), U.S. Small Business Administration (SBA),
Payoneer, Investopedia