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What is a Business Income?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 28 September 2016
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Business income is any type of income that is generated by the ongoing activity of a business operation. While the most common example of this type of income is generated by the sale of goods and services, many local and national tax agencies interpret business income to mean any type of revenue generation that is due to the business itself. This means that sources of passive income and other forms of earned income may properly be identified with and included in the total company income generated in a given time frame.

Companies of all sizes are capable of generating some type of business income. This is true for everything from sole proprietorships to large corporations. For this reason, most tax agencies provide specific guidelines for each type of business operation that help to identify the types of tax forms that must be filed. Instructions from professionals can also include recommendations on how frequently reports must be filed, such as monthly, quarterly, semi-annually, or annually. Along with representatives of the local or national tax agency, many financial advisors and accounting firms can aid new business owners in understanding what type of collected revenue qualifies as business income, and how to report that income in a way that is in compliance with agency regulations.

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In many ways, business income is to companies as ordinary income is to individual taxpayers. In both situations, the type of income that is realized goes a long way in determining how taxes are calculated. For this reason, it is important for business operations of any size to understand current tax laws and how they impact the classification of various types of income received by the business.

The total tax burden connected with business income is often offset by various types of business expenses that are allowed as deductions by a given tax agency. In situations where the total income for the period is surpassed by those expenses, no taxes are due. In like manner, many tax agencies allow companies to deduct certain types of business losses as a way of offsetting any income generated during the tax year. Since tax laws are subject to change, it is important for business owners to review current regulations carefully before filing returns. Doing so helps to minimize the potential for having certain deductions disallowed, leading to a higher tax debt that may be further increased by the presence of various types of fees and penalties.

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