What Are Taxes?
Taxes are mandatory contributions levied on individuals or corporations by a government entity—whether local, regional, or national. Tax revenues finance government activities, including public works and services such as roads and schools, or programs such as Social Security and Medicare.
In economics, taxes fall on whoever pays the burden of the tax, whether this is the entity being taxed, such as a business, or the end consumers of the business’s goods. From an accounting perspective, there are various taxes to consider, including payroll taxes, federal and state income taxes, and sales taxes.
Key Takeaways
- Taxes are mandatory contributions collected by governments.
- The Internal Revenue Service (IRS) collects federal income taxes in the United States.
- There are many forms of taxes and most are applied as a percentage of a monetary exchange (for example, when income is earned or a sales transaction is completed).
- Other forms of taxes, such as property taxes, are applied based on the assessed value of a held asset.
- Understanding what triggers a tax situation can enable taxpayers to manage their finances to minimize the impact of taxes.
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