The taxation procedure differs depending on the organizational and legal form. In general, legal forms of organization can be divided into two types depending on the taxation procedure.
- Legal entities with the status of corporations. These are C corporations and, in certain cases, limited liability companies. By default, limited liability companies for tax purposes have a transparent status. However, a company may be granted corporate status.
- Legal entities with transparent status. This category may include a private entrepreneur, S corporation, partnership, limited liability company.
Among the two types of legal forms mentioned above, under equal conditions, the strongest tax burden falls on corporations due to double taxation of their income. At the first stage, the profit of the corporation is taxed, then taxation occurs when distributing this profit in the form of dividends. Unlike corporations, taxation of transparent forms of income is taxed once at the level of business owners/partners.
However, despite significant differences in tax treatment, it is impossible to identify the best legal form of taxation. Each form has its own advantages and disadvantages, which should be considered in relation to a particular activity when choosing one form or another. It should be noted that when registering any of the above forms, it is necessary to register it with the U.S. federal tax authorities, i.e. to obtain a tax number.
Structure of the US tax system. Types of taxes
The U.S. tax system has a three-tier system. The first level is federal taxes. There are:
- Corporate Income Tax;
- Federal Income Tax;
- Accumulated Earnings Tax;
- Alternative Minimum Tax;
- Excise Tax;
- FICA Tax;
- Gift Tax.
The second level – state taxes. There are:
- Corporate Income and Franchise Tax;
- Sales and Use Taxes.
The third level is taxes levied by local authorities. This is:
- Property Tax.
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Tax credit system
The system of tax credits is one of the most common business benefits. This term is commonly used to refer to deductions that are made directly from the accrued tax, as opposed to deductions and exclusions allowed in determining the tax base. There are three parts of the investment credit: a regular tax credit (which encourages private investment), an investment tax credit for the rehabilitation of old buildings and an energy tax credit. Experience has shown that its abolition reduces investment and competitiveness, which slows down economic growth.
Local governments have a relatively limited number of tax sources at their disposal, largely similar to state taxes. The most important among local taxes is property tax. The tax is levied once a year on individuals and legal entities owning property. The basis for determining this tax is the estimated value of the property. Almost half of the states levy a sales tax. Revenue from this tax is collected in the state and then returned to the local government where it was collected.