Tax Obligations of Individuals and Businesses

Tax obligations are the amounts an individual or company owes to the government at the end of a taxation period. Taxes are imposed by local, state, and central governments to raise revenue for national amenities like infrastructure and healthcare. Taxpayers can claim deductions, exemptions, and tax credits to curb tax liability. The amount of taxes owed is determined by the income earned and the taxpayer’s filing status, which are based on federal tax brackets and standard and itemized deductions. Tax liabilities can also be impacted by any outstanding charges from prior years that have not been paid.

The Internal Revenue Code governs all federal income taxes. It is a complex set of rules that includes provisions like deductions, exemptions, and credits. It also includes rules for how taxes are collected and reported. The tax code is so extensive that it can be difficult to understand for anyone not working in a field related to federal taxation.

Individual Tax Obligations

Governments impose taxes to generate funds for services such as repairing roads and funding social programs. Taxes come in the form of income taxes, sales taxes, property taxes, and more. Individuals can lower their tax liabilities by claiming deductions, exemptions, and tax credits. Generally, taxes are levied by federal, state, and local authorities. Individuals must pay various taxes throughout the year, including federal income tax, social security, Medicare, unemployment, and self-employment. These taxes are usually withheld from paychecks or paid quarterly, depending on the taxpayer’s status.

Individuals may also be required to pay other types of taxes, such as property tax and capital gains tax. In order to determine these obligations, the individual must fill out an IRS Form 1040. It’s important to know exactly what you owe in taxes throughout the year so that you can adjust your withholding or estimated quarterly payments accordingly. When filing, this will help you avoid receiving a refund or a surprise tax bill. If you’re unsure what to do, consult an accountant or other tax professional for assistance. 

In North America, most people are either owed a refund or must pay a tax bill when they file. This is because predicting one’s income tax obligation in advance can be difficult. Moreover, deductions and other factors can fluctuate throughout the year, leading to differences in one’s tax liability.

Business Tax Obligations

Businesses must file and pay various federal taxes throughout the year to stay in good standing with the IRS. Each business structure has its own unique set of IRS requirements and responsibilities.

Depending on how the entity is structured, this can include federal income tax liability or other types of taxes, such as state and local income or sales taxes. Additionally, some types of businesses are taxed differently than others, such as an LLC (limited liability company), which is structured to offer personal liability protection for owners but uses a special system for taxation that is distinct from corporations. Depending on the type of business, companies might choose to use a calendar or fiscal tax year. A calendar tax year runs from January 1 through December 31. A fiscal tax year runs from October 1 through September 30.

A company’s tax obligations are recorded as a current liability on the balance sheet and reported on the income statement. These liabilities are payable within the next 12 months and include any taxes that must be paid immediately or by the end of the fiscal quarter. The company should keep records of all tax payments, credits, and deductions to accurately report its taxes in accordance with the IRS rules.

Types of Business Taxes

Depending on the business structure, state, and local tax laws will determine what kind of taxes the company is responsible for. A few examples of these taxes include:

Employment taxes (withholding for federal income and FICA tax, plus employer contributions to Social Security and Medicare), excise taxes for fuels and other products, and sales taxes on the sale of goods or services. These are usually collected by the business but can be collected and remitted by local governments as well.

Property taxes on real and personal property, such as equipment, furniture, and inventory, are also common. These are based on the value of the property, with different rules and rates for each jurisdiction.

Businesses can lower their tax liability by ensuring that they are paying all required taxes, filing accurate reports and returns on time, and taking advantage of any available deductions. Failure to pay and file taxes on time can result in interest, penalties, or even tax liens against the business. If you have any questions about your tax obligations or want to learn more about minimizing your taxes, consult a local accountant or attorney.