Taxes, as the saying goes, are one of only two certainties in life. This part of the adage applies just as much to businesses as it does to individuals. (The extent to which the other part of the adage—“death”—applies to businesses is a question for another day.) Starting and operating a business requires a careful consideration of tax-related consequences, as well as ways to minimize tax obligations. The tech company Apple, based in Silicon Valley but operating all over the world, has recently been the subject of a dispute over tax benefits it has received from the government of Ireland. While the nature of this dispute might not be applicable to most businesses that are smaller than Apple, it offers a demonstration of how businesses obtain tax benefits from various governments.
Corporations, partnerships, and other types of business entities must pay income tax to the federal government and many state governments, along with various other types of taxes, such as sales tax and payroll tax. Tax planning can include not only preparing for future tax obligations but also minimizing those obligations within the boundaries of state and federal tax regulations. A business might be able to take advantage of a “tax loophole,” and it might also be able to obtain tax benefits or concessions directly from a government.
Perhaps the most common way for both individuals and businesses to reduce their tax bill is by reducing their amount of “taxable” income. While they could do this simply by earning less money, the preferred method is to take various deductions, such as business operations and payroll expenses. Their taxable income equals their gross annual income minus all lawful deductions.