How does taxation work

We're here to help. Reach out by visiting our Contact page or schedule an appointment today. Bank of America and its affiliates do not provide legal, tax or accounting advice. We strive to provide you with information about products and services you might find interesting and useful. Relationship-based ads and online behavioral advertising help us do that. Here's how it works: We gather information about your online activities, such as the searches you conduct on our Sites and the pages you visit.

This information may be used to deliver advertising on our Sites and offline for example, by phone, email and direct mail that's customized to meet specific interests you may have. If you prefer that we do not use this information, you may opt out of online behavioral advertising. If you opt out, though, you may still receive generic advertising. Also, if you opt out of online behavioral advertising, you may still see ads when you sign in to your account, for example through Online Banking or MyMerrill.

These ads are based on your specific account relationships with us. To learn more about relationship-based ads, online behavioral advertising and our privacy practices, please review the Bank of America Online Privacy Notice and our Online Privacy FAQs.

You're continuing to another website that Bank of America doesn't own or operate. Its owner is solely responsible for the website's content, offerings and level of security, so please refer to the website's posted privacy policy and terms of use. It's possible that the information provided in the website is available only in English. These days, Americans pay many types of taxes. They include income taxes, property taxes, sales taxes, sin or excise taxes, capital gains taxes, and estate taxes.

People disagree about how high taxes should be. Others argue that robust taxation helps distribute income and provide for the common good.

That — and the bite taxes take out of our budgets — is part of why raising taxes can be a tough sell politically. SmartAsset can help you figure out how much you will earn after taxes with our paycheck calculator. Check out our investment calculator. The definition of a direct tax is a tax that is paid straight from the individual or business to the government body that imposes the tax. In other economies businesses are only allowed to claim a cash refund after carrying forward the excess credit for a specified period of time four example, four months.

The net VAT balance is refunded to the business only after this period ends. This is the case in 27 economies of the measured by Doing Business. The legislation in other economies — typically those with a weaker administrative or financial capacity to handle cash refunds — may not permit refunds outright. Instead, tax authorities require businesses to carry forward a claim and offset an excess amount against future output VAT.

Insofar as procedural checks are concerned, in 76 of the economies which allow for a VAT cash refund in the Doing Business case scenario, a claim for a VAT refund will probably lead to an additional review being conducted before approving the VAT cash refund. Effective audit programs and VAT refund payment systems are inextricably linked. In Canada, Denmark, Italy and Norway a request for a VAT refund is likely to trigger a correspondence audit, which requires less interaction with the auditor and less paperwork.

By contrast, in most economies As far as the format of the VAT refund request is concerned, in 54 of the economies the VAT refund due is calculated and requested within the standard VAT return submitted in each accounting period. In the other economies, the request procedure varies from filing a separate application, letter or form for a VAT refund to completing a specific section in the VAT return as well as preparing some additional documentation to substantiate the claim.

In these economies, businesses spend on average 5. Economies in Europe and Central Asia also perform well with an average refund processing time of These economies provide refunds in a manner that does not expose businesses to unnecessary administrative costs and detrimental cash flow impacts.

Doing Business data also show a positive correlation between the time to comply with a VAT refund process and the time to comply with filing the standard VAT return and payment of VAT liabilities.

This relationship indicates that tax systems that are harder to comply with when filing taxes are more likely to be challenging throughout the process. Tax audits play an important role in ensuring tax compliance. Nonetheless, a tax audit is one of the most sensitive interactions between a taxpayer and a tax authority.

It imposes a burden on a taxpayer to a greater or lesser extent depending on the number and type of interactions field visit by the auditor or office visit by the taxpayer and the level of documentation requested by the auditor. It is therefore essential that the right legal framework is in place to ensure integrity in the way tax authorities carry out audits.

A risk-based approach takes into consideration different aspects of a business such as historical compliance, industry and firm-specific characteristics, debt-credit ratios for VAT-registered businesses and the size of a business in order to better assess which businesses are most prone to tax evasion.

One study showed that data-mining techniques for auditing, regardless of the technique, captured more noncompliant taxpayers than random audits. In a risk-based approach the exact criteria used to capture noncompliant firms, however, should be concealed to prevent taxpayers from purposefully planning how to avoid detection and to allow for a degree of uncertainty to drive voluntary compliance.

Despite being a postfiling procedure, audit strategies can have a fundamental impact on the way businesses file and pay taxes. To analyze audits of direct taxes the Doing Business case study scenario was expanded to assume that TaxpayerCo. In all economies that levy corporate income tax — only 10 out of do not — taxpayers can notify the authorities of the error, submit an amended return and any additional documentation typically a letter explaining the error and, in some cases, amended financial statements and pay the difference immediately.

Businesses spend 6 hours on average preparing the amended return and any additional documents, submitting the files and making payment. In 75 economies the error in the income tax return is likely to be subject to additional review even following immediate notification by the taxpayer.

In 36 economies this error will lead to a comprehensive review of the income tax return, requiring that additional time be spent by businesses. On average, it takes about 83 days for the tax authorities to start the comprehensive audit. In these cases, taxpayers will spend hours complying with the requirements of the auditor, going through several rounds of interactions with the auditor during Your message has been sent.

Your message was not sent. Please try again. Cancel Send. Corporate Significant developments Taxes on corporate income Corporate residence Other taxes Branch income Income determination Deductions Group taxation Tax credits and incentives Withholding taxes Tax administration Other issues.