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What is a Corporation Tax?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 29 November 2016
  • Copyright Protected:
    2003-2016
    Conjecture Corporation
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Corporation tax is tax debt that is assessed on a business. The schedule for taxes of this type is typically different from the schedules used to calculate taxes for trusts or for individual taxpayers. Depending on the tax laws that apply in the area where the business is located, several different types of tax assessments may be included in the overall corporation tax that is due to local and national level tax agencies.

While the criteria for calculating corporation tax varies from one nation to the next, most processes call for determining the amount of taxable income by excluding such items as depreciation on specific types of assets, any capital allowances that may be legally claimed according to current tax laws, and any special provisions that may apply to that business for a specific tax year. In some nations, the overall corporation tax will also include consideration of any type of dividends paid to stockholders, as well as other types of distributions that may have occurred during the tax period under consideration.

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Often, the corporation tax is based on what is known as net taxable income. This figure is often based on information included on the company’s financial statements, allowing for some modifications based on current tax laws. There are areas around the world where the core of taxable income is based on the amount of assets held, the total payroll of the business, and that portion of the income that is considered to be profit.

As with any type of tax debt, corporation tax may be reduced with the use of applicable tax deductions. These reductions in the tax base may be ongoing deductions that the business can legally claim from one tax period to the next, or be in the form of a special deduction that only applies to a specific period. In order to remain up to date on what types of deductions and allowances are available, many smaller businesses utilize professional accounting services that stay abreast of any changes in applicable tax laws that affect the calculation of the taxes owed by their clients.

The type of corporation may also have some influence over the way that corporation tax is calculated. In some nations, it does not matter if the business is a limited liability corporation or a sole proprietorship; the tax schedule is the same for all businesses. Other nations draw significant distinctions between how corporation taxes are calculated, based on the types of corporations involved. When establishing a new business, owners would do well to look closely at the tax laws that apply in their nation of origin, identify the types that offer the most benefits in terms of minimizing tax debt, and include that information in their decision of how to formally organize the business.

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