Income tax, as the name implies, is a government tax that a legal entity (individual or company) must pay on income earned during a fiscal year. This tax is levied based on the amount of income.
Income tax is a recurring expense for a business because it must be paid annually. It is deducted from the net profit of a business. The government collects income tax to fund public services, pay off debts, and provide goods to the general public.
There are three types of taxes, they are:
Individual income tax: These are taxes levied on an individual’s income such as wages, salaries, and others.
Business income tax: These are taxes levied on the income of corporations,
State and Local income tax: In the US, citizens pay federal tax irrespective of their states. In addition to that, most states and sometimes local governments impose taxes.