Business vs Individual Taxation (Essay Sample)

Business vs individual Taxation
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Depreciation
Depreciation is an income tax deduction that gives permission to the tax payer to be in a position to recover the cost of an asset. It is also known as an allowance for wear and tear or obsolescence of the asset. Businesses are allowed to claim for depreciation. For business income tax, depreciation is deducted and hence reduces the taxes that are going to be paid. For individual income tax, depreciation is ignored and hence it is not accounted for in the books.
Double taxation
Double taxation occurs when the income taxes are paid twice on the same source of the income earned. The concept of double taxation occurs because companies are taken as separate legal entities from the shareholders CITATION Raj07 \l 1033 (Raj & Emmanuel , 2007). In instances where the corporations pay dividends to the shareholders, those dividends are subjected to tax even though the company had been taxed before paying for the dividends. The income for companies is usually subject to double taxation. The income is first taxed before being distributed in the form of dividends to the shareholders. The dividends are further taxed on the owners who receive them. In a bid to ease the burden of double taxation on individuals, many countries have come up with legislations that on the double taxation. Two main methods are used in this case. One is through tax exemption. The income is exempted from tax in the country where that income was derived. Alternatively, the exemption may be given resident recipient country. The second approach is that the individual taxpayer may be given credit. In instances where the income is taxed in both countries, the country where the receiver of income is resident will give credit to its tax for the other country tax.
Dividends
Dividend tax is a tax that is charged on the dividend income received by shareholders in a company. For corporations, they are required by law to pay taxes on their income before they distribute dividends to the shareholders. The companies should, therefore, pay taxes first before they distribute dividends to the shareholders. In the case that a corporation receives dividends from another corporation, such dividends are not tax exempt