Tax Compliance Services
Tax compliance refers to the degree to which a taxpayer, an individual or a business entity, complies with the tax laws and regulations of his country in a timely manner.
In the U.S., an individual or a corporation generally has to file returns and pay taxes to the federal government, the state where it is incorporated, and to those other states and jurisdictions in which it transacts business. An individual or corporation may also have the responsibility for the collection of some taxes collected from others and for the remittance of the collected amounts to the government.
Failure of an individual or corporation to comply with tax reporting or taxation requirements may result in penalties that range from interest and fines to the loss of the individual’s or corporation’s right to exist or do business in the state or jurisdiction that imposes the requirements.
Corporations are subject to various tax and reporting requirements, including the following:
Federal Corporate Income Tax
For federal tax filing purposes, there are two types of corporations: Subchapter C or “C” corporations, and Subchapter S or “S” corporations. A “C” corporation is required to file a federal tax return and pay the corresponding federal taxes on income that it earned. A C corporation is subject to double taxation because not only is its income receive taxable at the corporate level. Any profit that is distributed to its shareholders in the form of dividends is also taxed as personal income.
An S corporation need not pay corporate income taxes. The corporation’s income and expenses, instead, are divided and passed to the corporate shareholders, who are then required to report the income and expenses on their personal tax returns.
To qualify as an S corporation, a corporation needs to meet various restrictions provided for in the tax laws. A corporation may elect as an S corporation by filing a form with the IRS, with the consent of all its shareholders.
Withholding and FICA
A corporation with employees is required to be tax compliant and withhold from the taxpayers’ wages. The Federal Insurance Contributions Act or FICA, which is also known as social security, requires that both employers and employees contribute a share of wages paid to provide for old age, survivors, medical, and disability benefits to employees. The local employer shall withhold the share of the employee from every taxable wage payment he receives until reaching a designated taxable wages amount.
Corporate employers are required to file returns and make a deposit of the tax withheld and the FICA tax with an authorized bank depository or a Federal Reserve bank. The corporation, like taxpayers, is also required to furnish each employee annually with a statement of wages paid and taxes withheld for the previous calendar year.
A corporation that operates in a state with services is also required to withhold tax from the wages of its employees and remit the same to the state. Compliance is required by the local authorities.
In some states, a corporation is taxed because of it being a corporation. This tax, called franchise tax, is a privilege tax imposed upon a corporation’s right to do business as a corporation. Paying this is also part of tax compliance procedures. Companies are audited for compliance as well as the accuracy of their books.
State Corporate Income Tax
State corporate tax is similar to federal corporate income tax. This is generally the net income tax of the corporation. Net income is that portion of the gross income of the corporation subject to taxation. Businesses must file the right amount as part of their tax planning strategies and tax compliance.
Individuals and corporations, and other business entities, are subject to property taxation. It is the tax levied upon the use or ownership of property, or upon the property itself. Tax compliance is required to make the transactions legally binding and executable.
Sales and Use Tax
Sales and use taxes are levied by most of the states. These are taxes the government imposed upon the gross amount of certain transactions. Sales taxes are usually imposed on the retail sale of different types of tangible personal property. Other states also impose sales taxes on sales of services, rentals, admissions to entertainment or sporting events, and other types of transactions.
Individuals and businesses must a tax return and pay their taxes on the designated time of the year for tax compliance. Failure to do so will merit penalties or punishments.
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