Certified Financial Management Specialist Practice Exam

What does corporate tax refer to?

1. Tax on individual income

2. Tax on corporate income after expenses

3. Tax on sales revenue

4. Tax on property owned by corporations

The correct answer is: Tax on corporate income after expenses

Corporate tax specifically refers to the tax imposed on the income generated by corporations, calculated after all allowable expenses have been deducted. This means that corporations pay taxes only on their profits, which is the income left over after accounting for costs such as salaries, operating expenses, depreciation, and other deductions relevant to their business activities. This type of taxation is significant because it affects the net earnings of the corporation, influencing decisions regarding reinvestment, dividend distribution, and overall financial planning. The other options focus on different types of taxes: individual income tax applies to the earnings of individuals rather than corporations, sales tax is levied on the sale of goods and services, and property tax relates to the ownership of real estate. Each of these categories represents a different aspect of taxation appropriate to distinct entities or activities, thereby underscoring the unique nature of corporate tax as it pertains solely to corporate income.