Federal Income Tax 2 – HW W7

Anyone who starts an entrepreneurial venture seeks to make profits. Entrepreneurs build
businesses from scratch as they aim to achieve the goal of achieving success by maximizing
profits. The government regulates all business ventures. One of the regulation frameworks
adopted by governments is taxation. Taxation is the method through which governments can
finance their expenditures. Governments thus impose taxes on both individuals and businesses
with the aim of ensuring that they can increase the revenues collected. Taxation policies adopted
by the government affect businesses. High taxes increase the costs of doing business. Some costs
can be passed down to consumers, while some cannot.
The structure of the business defines tax rules that apply. Corporations are legal entities
that are separate from the owners. On the other hand, a partnership or a sole proprietorship does
not have a separate legal entity separate from that of the owners. Taxation thus differs based on
whether or not a business enjoys a separate legal entity from that of the owners. Understanding
taxation laws and rules are important because it helps one make the correct choice when starting
a business. Understanding taxation helps one to avoid making mistakes related to ignorance. One
avoids legal penalties that are associated with flaunting the tax laws. Studying taxation enables
one to comply with underlying tax rules as well as understand the importance of taxation in
an economy. Taxation knowledge also helps one in record keeping. One understands how to
calculate the taxes, and this ensures that one makes tax claims where necessary.