A mandatory payment or charge levied by local, state, and national governments from individuals and businesses to fund general government services, goods, infrastructure development, and national defence. Taxes are imposed on specific types of property, income, transactions, transfers, importations of goods, and business activities, and are typically defined under rules and regulations that vary by jurisdiction.
The primary source of revenue for most governments, taxes are used to provide a range of public goods and services including healthcare, education, sanitation, transportation, utilities, and national defence. A progressive tax system, where higher-income individuals are required to pay a larger percentage of their income in taxes, also helps reduce wealth disparity by encouraging richer citizens to spend less than they earn, which lowers demand for goods and services and keeps prices low.
For businesses, federal income tax applies to profits and other earnings, while payroll taxes are owed by employees, sales taxes apply to purchases of goods and services, and capital gains taxes are owed on stock-market investments. A variety of deductions and credits can be used to lower taxable income, which in turn reduces the amount of tax owed.
Filing and paying taxes on time is a legal requirement for both businesses and individuals. Late payments can lead to hefty fines and penalties, as well as other legal issues. Proper planning and compliance help reduce the risks of missed deadlines and unexpected surprises. Using a tax liability calculator can simplify the process and ensure you’re on track to meet quarterly estimated tax payments.