A taxpayer is a person or organization (such as a company) subject to pay a

tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or n ...

. Modern taxpayers may have an identification number, a reference number issued by a

government A government is the system or group of people governing an organized community, generally a state. In the case of its broad associative definition, government normally consists of legislature, executive, and judiciary. Government is ...

to citizens or

firm A company, abbreviated as co., is a legal entity representing an association of people, whether natural, legal or a mixture of both, with a specific objective. Company members share a common purpose and unite to achieve specific, declared go ...

s. The term "taxpayer" generally characterizes one who pays

es. A taxpayer is an individual or

entity An entity is something that exists as itself, as a subject or as an object, actually or potentially, concretely or abstractly, physically or not. It need not be of material existence. In particular, abstractions and legal fictions are usually ...

that is obligated to make

payments A payment is the voluntary tender of money or its equivalent or of things of value by one party (such as a person or company) to another in exchange for goods, or services provided by them, or to fulfill a legal obligation. The party making the ...

municipal A municipality is usually a single administrative division having corporate status and powers of self-government or jurisdiction as granted by national and regional laws to which it is subordinate. The term ''municipality'' may also mean the go ...

or government taxation-agencies. Taxes can exist in the form of

income taxes An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them (commonly called taxable income). Income tax generally is computed as the product of a tax rate times the taxable income. Ta ...

and/or property taxes imposed on owners of real property (such as homes and vehicles), along with many other forms. People may pay taxes when they pay for

goods and services Goods are items that are usually (but not always) tangible, such as pens, physical books, salt, apples, and hats. Services are activities provided by other people, who include architects, suppliers, contractors, technologists, teachers, doc ...

which are taxed. The term "taxpayer" often refers to the workforce of a country which pays for government systems and projects through taxation. The taxpayers' money becomes part of the

public funds Government spending or expenditure includes all government consumption, investment, and transfer payments. In national income accounting, the acquisition by governments of goods and services for current use, to directly satisfy the individual o ...

, which comprise all money spent or invested by government to satisfy individual or collective needs or to generate future benefits. For tax purposes, business entities are also taxpayers, making their

revenue In accounting, revenue is the total amount of income generated by the sale of goods and services related to the primary operations of the business. Commercial revenue may also be referred to as sales or as turnover. Some companies receive reven ...

s and

expenditures An expense is an item requiring an outflow of money, or any form of fortune in general, to another person or group as payment for an item, service, or other category of costs. For a tenant, rent is an expense. For students or parents, tuition is ...

subject to taxation.

Types of taxes

; Taxes on income The government levy

income tax An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them (commonly called taxable income). Income tax generally is computed as the product of a tax rate times the taxable income. Tax ...

es on personal and business revenue and interest income. In addition to income taxes, the government can also mandate that employers subtract

payroll tax Payroll taxes are taxes imposed on employers or employees, and are usually calculated as a percentage of the salaries that employers pay their employees. By law, some payroll taxes are the responsibility of the employee and others fall on the em ...

es from their workers’ paychecks each pay period, and then match the sums deducted.

Capital gains tax A capital gains tax (CGT) is the tax on profits realized on the sale of a non-inventory asset. The most common capital gains are realized from the sale of stocks, bonds, precious metals, real estate, and property. Not all countries impose a c ...

es are those paid on any profits made from the sale of an asset and are usually applied to stock and bond transactions. Estate taxes are imposed on the transfer of property upon the death of the owner. ; Taxes on property Property tax, sometimes known as an ad valorem tax, is imposed on the value of real estate or other personal property. Property taxes are usually imposed by local governments and charged on a recurring basis. Real estate taxes are often subject to fluctuation based upon a jurisdiction’s assessment of the worth of a property based on its condition, location and market value, and/or changes to the amounts apportioned to various recipients of the tax. ; Taxes on goods and services The sales tax is most often used as a method for states and local governments to raise revenue. Purchases made at the retail level are assessed a percentage of the sales price of a particular item. Rates vary between jurisdictions and the type of item bought. Excise taxes are based on the quantity of an item and not on its value. User fees are taxes that are assessed on a wide variety of services, including airline tickets, rental cars, toll roads, utilities, hotel rooms, licenses, financial transactions and many others. So-called

sin tax A sin tax is an excise tax specifically levied on certain goods deemed harmful to society and individuals, such as alcohol, tobacco, drugs, candies, soft drinks, fast foods, coffee, sugar, gambling, and pornography. In contrast to Pigovian ta ...

es are imposed on items like cigarettes and alcohol. Luxury taxes are imposed on certain items, such as expensive cars or jewelry.

Types of taxpayers

Taxpayers can be classified into two major categories – individual and corporation. A corporation is a legal entity that is separate from the owners for tax purposes. These major categories can be further divided in different subcategories. Individual taxpayers can be classified as either a citizen or an alien (an alien is a person who resides within the borders of a country and is not a national of that country). A citizen can further be classified as either a resident citizen or a non-resident citizen. Corporations can be classified into domestic, foreign and partnership. A foreign corporation is either resident foreign or non-resident foreign corporation. A resident foreign corporation is a foreign corporation engaged in trade or business in the country. A non-resident foreign corporation is a foreign corporation not engaged in trade or business within the country but deriving income from sources in the country. A partnership is a business structure where ownership and management responsibility of a company is split between two or more individuals. A partnership is not a legal entity that is separate from the owners and therefore the partnership itself does not pay taxes. The classification depends on given country and may vary.

Taxpayers' money

Taxpayers' money help to pay for the items on the federal budget. The gap between revenue (money collected via taxes) and spending is known as the budget deficit. The money the federal government borrows to cover the budget deficit is what creates the national debt. The government spends money for a variety of reasons: reduce inequality (“safety net” programs), provide public goods (fire, police, national defence), provide important public services like education and health (merit goods), debt interest payments, transport and military spending. The “safety net” programs are initiatives that give extra financial support to the elderly, unemployed, disabled and the poor. Examples include the earned income tax credit, child tax credits, unemployment insurance, food stamps, subsidized school meals, low-income housing assistance, energy assistance and more. The federal government spends its money in four major ways: direct payments, grants, contracts and insurance.

Tax avoidance and tax evasion

Taxpayer may violate the law by not paying the taxes. It is called the

tax evasion Tax evasion is an illegal attempt to defeat the imposition of taxes by individuals, corporations, trusts, and others. Tax evasion often entails the deliberate misrepresentation of the taxpayer's affairs to the tax authorities to reduce the tax ...

, it is an illegal practice where a person, organization or corporation intentionally avoids paying his true tax liability. Those caught evading taxes are generally subject to criminal charges and substantial penalties. It's considered tax evasion if taxpayer knowingly fails to report income or under-report income (claiming less income than you actually received from a specific source), provides false information to the IRS about business income or expenses, deliberately underpays taxes owed or substantially understates taxes (by stating a tax amount on return which is less than the amount owed for the income reported). Tax evasion differs from

tax avoidance Tax avoidance is the legal usage of the tax regime in a single territory to one's own advantage to reduce the amount of tax that is payable by means that are within the law. A tax shelter is one type of tax avoidance, and tax havens are jurisdi ...

, which is the use of legal methods to modify an individual's financial situation to lower the amount of income tax owed.

References

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External links