Taxable Income
Most systems impose income tax at a specified rate of tax times taxable income as defined in the system. Many systems define taxable income by reference to net income before income taxes per financial statements prepared under locally accepted accounting principles. Such income may be decreased for income subject to tax exemption. Other adjustments often apply.
Some systems define taxable income within the system. The United States system defines taxable income for a corporation as all gross income (sales plus other income minus cost of goods sold and tax exempt income) less allowable tax deductions, without the allowance of the standard deduction applicable to individuals.
Principles for recognizing income and deductions may differ from financial accounting principles. Key areas of difference include differences in the timing of income or deduction, tax exemption for certain income, and disallowance or limitation of certain tax deductions. The United States system requires that these differences be disclosed in considerable detail for non-small corporations on Schedule M-3 to Form 1120.
Most systems tax resident corporations (generally those organized within the country) on their worldwide income, and nonresident corporations only on their income from sources within the country. A few systems, such as Hong Kong, tax resident and nonresident corporations only on income from sources within the country.
Read more about this topic: Corporate Tax
Famous quotes containing the word income:
“The question for the country now is how to secure a more equal distribution of property among the people. There can be no republican institutions with vast masses of property permanently in a few hands, and large masses of voters without property.... Let no man get by inheritance, or by will, more than will produce at four per cent interest an income ... of fifteen thousand dollars] per year, or an estate of five hundred thousand dollars.”
—Rutherford Birchard Hayes (1822–1893)