There are many ways that businesses can be formed and make deals, and it often seems that there are a corresponding number of ways in which businesses can be taxed. Business tax law varies by country, and within each country, sometimes also by state or province. Still, there are some constants. Most businesses, particularly small businesses, evaluate the tax ramifications of their particular jurisdiction before incorporating, and may choose the form of their business — partnership, sole proprietorship, or corporation, for instance — to minimize tax consequences down the line. Understanding the different kinds of applicable business tax law will make tax time easier for a business, and can also help a business plan ahead and make tax-minimizing choices.
All business tax laws are codified in a tax code, and are usually considered facets of civil law. A tax code is the governing tax structure for a specific jurisdiction, and it sets out the rules and applications of the various tax laws. Many tax codes are difficult to understand and apply, and many business owners choose to consult with an attorney specializing in business tax law for help with applying the code and its rules, as well as for tax management advice.
One of the most universal business taxes is income tax. Business income is treated differently than personal income in most places. Even states or countries without a personal income tax often tax business income. Sometimes the income is broken down into net gains or profit, or sometimes it is defined as the raw money coming in. Some business transactions, such as bulk sales, also carry tax consequences. The sale of stock or other asset transfers almost always have consequences in business tax law.
Most businesses also have a tax obligation for their employees. Businesses must usually withhold taxes on behalf of employees, and must handle the transfer of that money to the appropriate government tax agency. Businesses are sometimes also taxed based on the manpower they possess, and tax schemes are often graduated based on the number of employees a business keeps on the payroll.
In countries that require businesses to file their own taxes, such as the United States, figuring out which deductions a business can claim makes up another branch of business tax law. Some jurisdictions offer tax breaks and deductions for businesses in certain circumstances, often related to business size or industry. Home-based business set-ups are also usually eligible for some sort of deduction. These deductions do not usually apply automatically, however — a business owner must specifically claim them on the business tax return.
Business tax law sometimes also must be considered by source. Localities may have different taxes and tax schemes than national jurisdictions: a city, for instance, may assess a tax independent of the tax levied by the national government. A business owner is responsible for both knowing the business’s tax liability, and making the payments in a timely way.