Tax Explained to Kids
From: www.linkedin.com (Nicolas Boucher)
Do you know these 10 types of tax?
Here are the most simplified explanations to make you understand them:
1. Income Tax
If you earn $10 from selling lemonade and have to give $2 to your parents because they helped you set up the stand.
➡️ Companies make money, and they have to give a part of it to the government
2. Deferred Tax
You earn money today, but the rules say you don’t have to pay your share to the neighborhood fund until later.
➡️ Taxes based on published financials but tax authorities will recognize them in another year
3. Corporate Tax
This is a special tax just for companies. It is like a club membership fee for being allowed to do business.
➡️ The more money the company makes, the more it has to pay to be part of the “business club” in a country
4. Payroll Tax
You hire your friend to help sell lemonade and pay them, you also have to give some money to help with things (roads, schools, etc) that your friend uses.
➡️ Companies do the same when they pay their employees
5. Sales Tax
Imagine you sell a cup of lemonade for 1 dollar, but you also have to ask for an extra dime (10 cents) that goes straight to your neighborhood for keeping the parks clean.
➡️ When companies sell things, they often add a little extra money to the price that goes to the government
6. Property Tax
Suppose you have a little table for your lemonade stand on your lawn.
If you’re playing a game where you have to pay a few coins every year to use that spot because it’s the best spot on the street.
➡️ Companies pay taxes for owning or using buildings and land
7. Excise Tax
This is a special extra price for certain things that are either not good for you or are special, like if you decided to sell super fizzy lemonade.
The government might say, “Okay, for every fizzy drink, you need to give us an extra quarter.”
➡️ Companies pay these when they bring products from other countries
8. Customs Duties
If you buy lemons from a friend in another neighborhood and bring them back to your stand, imagine having to give a few pebbles at the border of your neighborhood. That’s like customs duties.
➡️ Companies pay these when they bring products from other countries
9. Transfer Pricing
Picture having lemonade stands in different areas, shared with your cousin. You and your cousin share lemons and sugar but need to decide fair charges.
➡️ Companies set charges between different branches. This affects tax payments in various locations
10. Value-Added Tax (VAT)
Imagine if every time you added something cool to your lemonade, like a special straw or ice, you had to pay a few extra pennies. That’s VAT.
➡️ It’s a tax added every time value is added to a product
How would you explain them to your kid?
