Question

Corporations do not pay income taxes when they make a loss. Unlike businesses, individuals may pay income taxes even when their income is less than expenditure? provide justifications for why corporations do not pay income taxes when they make a loss but individuals pay income taxes when their income is less than their expenditure. Also, discuss the circumstances under which an individual will not pay income tax when his income is less than his expenditure.

Answer 1

Corporate tax is that tax which is levied on the taxable income the corporates earn. The taxable income is calculated after making all the expenses and the required provisions. So, it is basically the tax on the profits the corporates make. While income tax is levied on the individual incomes. For corporates, the receipts or the revenues when being reduced by the total expenses of the corporates, we then arrive at the profits of the firm. The corporate tax is only limited to the profits the corporates make. In case of individuals, the income minus expenditure is savings and it is not what is being taxed in income tax. The individuals decide their expenditures after paying taxes which is their disposable income. Deciding how much to spend does not affect the income which is supposed to be taxed but only the savings which actually has nothing to do with the income tax. This is why individuals pay even when they spend more than their income but not the corporates.

If the individual's income is merely the scholarship one gets which is not taxable, then he cannot be taxed even when he spends more than his income(scholarship).