ABSTRACT
This chapter discusses how to determine taxable income, and there from tax, for a business. Income tax is payable by both individuals and corporations. The taxes are calculated using rates fixed by the governments. Income tax rates are usually variable or graduated, which means that the rate depends on the income level. Income tax is payable on taxable income. Taxable income is the difference between gross income and the direct expenses incurred in generating the income. Gross income is the difference between the revenue from the sale of goods and services and the operating cost incurred in their production and marketing. For incorporated businesses, taxable income is determined by deducting from the gross income expenditures on depreciable assets used in generating the sales revenue. Accounting for the obligation of income tax arising from engineering investment is called after-tax economic analysis.
