Corporate tax facts for kids

Corporate tax is a special kind of tax that businesses called corporations pay to the government. Think of it like a company's share of helping to fund public services.

Governments collect taxes from people and businesses to pay for things like schools, roads, hospitals, and police. Just as individuals pay income tax, corporations pay corporate tax on the money they earn.

What is a Corporation?

A corporation is a type of business that is legally separate from its owners. Imagine a big company like a separate "person" in the eyes of the law. This means the company can own property, sign contracts, and even pay taxes on its own.

Many large businesses, from car manufacturers to tech companies, are set up as corporations. This structure helps them grow and raise money.

Why Do Companies Pay Corporate Tax?

Companies pay corporate tax for several important reasons:

• Funding Public Services: The money collected from corporate taxes helps governments pay for things that benefit everyone, including the businesses themselves. This includes roads for transporting goods, educated workers from public schools, and a stable society.
• Fairness: It's seen as fair that profitable businesses contribute to the society that allows them to operate and succeed.
• Economic Management: Governments can sometimes adjust corporate tax rates to encourage businesses to invest more, create jobs, or to slow down an overheating economy.

How Corporate Tax Works

Corporate tax is usually calculated on a company's profit, not just its total sales (revenue). Profit is the money left over after a company has paid all its expenses, like salaries, rent, and materials.

Here's a simple way to think about it:

• A company sells products and earns money (this is its revenue).
• It then pays for everything it needs to run the business (these are its expenses).
• The money left over is its profit.
• The government then takes a percentage of this profit as corporate tax.

The percentage of profit that a company pays in tax is called the corporate tax rate. This rate can be different in various countries or even in different parts of the same country.

Different Tax Rates for Different Businesses

Sometimes, certain types of organizations might pay very low or no corporate tax. For example:

• Cooperatives: These are businesses owned and run by their members, often for a shared benefit rather than just making a profit.
• Non-profit organizations: These groups, like charities or some educational institutions, focus on a mission rather than making money. They often have special tax rules.

Where Does the Money Go?

The money from corporate taxes goes into the government's general fund. From there, it's used to pay for a wide range of public services and projects. This includes:

• Building and maintaining roads and bridges.
• Funding public schools and universities.
• Supporting healthcare systems.
• Paying for national defense and public safety.
• Investing in scientific research and development.

Corporate taxes are a significant part of how governments collect money to provide for their citizens.

Images for kids

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  Share of U.S. Federal Revenue from Different Tax Sources (Individual, Payroll, and Corporate) 1950–2010

See also

In Spanish: Impuesto sobre sociedades para niños