Varying explanations for taxes have been offered throughout history but the most basic function of taxation has remained constant. Early or modern the basic function of taxation is to fund government expenditures. Read on to know more.
What does taxation mean?
Taxation is the method by which a government (or a taxing authority) imposes and levies a tax on its citizens and business entities. The term “taxation” refers to all types of involuntary levies, from income to estate taxes.
What are the different types of taxation?
- Income tax − An income tax is a form of tax that governments impose on income produced by businesses and people within their jurisdiction. Income taxes are a source of revenue for governments that are used to fund public services, provide goods for citizens, and pay government obligations. As stated by international law, every earner must file an income tax return on a yearly basis to determine their tax obligations.
- Corporate tax − A corporate tax is a levy placed by the government on a firm’s profit. Operating earnings of a firm are calculated by deducting expenses and tax rates are applied to develop a legal obligation that the business owes the government. The total money collected from corporate taxes is used as a country’s source of income.
- Capital gains − Capital gains tax is a levy assessed based on the positive difference between the sale price of the concerned asset and its original purchase price. Long-term capital gains tax is a levy based on the profits from the sale of assets withheld for over a year, where the tax rates vary depending on your tax bracket. Tax on capital gains is triggered at the time when an asset is financially released.
- Property tax − Property tax is a tax imposed on property owned by an individual or other legal entity, such as a business firm. Generally, property tax is a real estate regressive form of tax, calculated by a local government and paid by the owner of the property. It is usually based on the value of the owned property, including land and jurisdictions that are tax tangible personal property.
- Inheritance − An inheritance is a financial term that refers to the assets passed down to individuals after someone has died. Most inheritances consist of cash that’s saved in a bank account and may contain stocks, bonds, cars, jewelry, etc. Those who receive an inheritance are subject to inheritance taxes. The more distantly related a beneficiary is to the decedent, the larger will be the inheritance tax.
- Sales tax − A sales tax is a consumption tax levied by the government on the sale of products and services. A conventional sales tax is levied at the time a sale is made, collected by the retailer, and passed on to the government.
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