Are you getting confused about what double taxation means? In this article, we’ll discuss the basics of this principle in the simplest way possible.
What is Taxation?
To fully grasp the meaning of double taxation, we should go back to what taxation means at its core. Taxation is a person’s contribution to the necessary expenses the country incurs. It’s collected and allocated by the government. When you buy goods or services, you pay taxes. When you get your income, yet again, you pay taxes.
Why Should You Pay Taxes?
Paying taxes means creating and maintaining roads and flyovers. It means building public libraries and helping those who are less fortunate have a chance at life through feeding programs and assisted education. Taxes are the blood of the government; it keeps the system running to develop and take care of the country and its citizens.
What is Double Taxation?
Double taxation, as its name suggests, implies taxes being charged twice. The most common example is when a corporation earns profits and subsequently pays its shareholders dividends.
Where are the taxes in this situation?
- When the corporation pays corporate tax on the profits they earned
- When the shareholders pay dividend tax
Corporations often have to pay double tax since they are considered as separate legal entities; hence, they are taxed differently.
The debate on whether double taxation is fair or not is still ongoing. Of course, those who are taxed twice will say it’s unfair, while those who are not affected by it will claim that the people who get to be taxed twice are actually wealthy enough to bear it. Also, corporations have the choice to release dividends.
The Outlier: Citizenship-Based Taxation (CBT)
A hot topic that involves double taxation is CBT. More and more Americans choose to renounce their citizenship because of The Foreign Account Tax Compliance Act or FATCA that imposes citizenship-based taxation.
Meaning, Americans, no matter where they live, are still taxed by the US government. This makes it harder for an American living in another country because they need to pay two separate taxes – to the US and the place they’re residing in.
American citizens need to file a US tax return, no matter where they earned their income. Even if their income was already taxed abroad, they are still bound to be taxed by the US.
Why is CBT Harmful?
There is a reason why there are only two countries that still use CBT. Today’s economy works best with taxes related to residency and not citizenship. Even if it’s deeply engraved in the US’s history, with CBT used to raise funds for the Civil War and to press patriotic responsibilities on Americans living elsewhere, the continuation of CBT will only be detrimental to the US and its citizens.
Do You Need Help with Your Taxes?
Expenses seem to go up and up in recent years, and the pandemic made it even worse. If you need help paying your taxes and don’t know where to look for assistance, you can try online payday loans, like Payday Depot. It’s quick, reliable, and convenient. Stay on top of your expenses so you don’t find yourself needing to pay penalties.