Definition: Taxes are mandatory contributions levied on individuals or corporations by a government entity—whether local, regional or national. From an accounting perspective, there are various taxes to consider, including payroll taxes, federal and state income taxes, and sales taxes.

In Plain English: Taxes are an expense that every business pays, calculated as a percentage of income.

Example: If your shoe business’ EBT was $100 and your tax rate was 27% (the typical corporate tax rate for the United States) then you would pay $27 in taxes.

There are many types of taxes that are applied in various ways. Understanding what triggers a tax situation can enable taxpayers to manage their finances to minimize the impact of taxes.