Cash taxes are, quite simply, tax obligations which are paid in cash. This term is generally used to refer to taxes paid by companies, both on behalf of their employees through tax withholding and to meet their own tax obligations. Individuals may also pay cash taxes if their tax liabilities exceed the amounts withheld on their behalf, or if they are working independently. Since companies can have very large obligations which they must pay, usually quarterly, calculating cash taxes is more of a concern for them than it is for individuals.
Tax liability depends on income or profits balanced against exemptions and deductions. Once a final number is arrived at by an accountant or tax preparer, it is sometimes possible to directly reduce it through deductions or tax credits. In the corporate world, a number of government incentives are provided in the form of direct deductions from tax liability which are designed to provide companies with more income after taxes. The rest of the tax liability must be made up with cash taxes. Typically, taxation agencies do not extend credit or other payment options, and want cash or cash equivalents to satisfy tax bills.
When calculating net income, cash taxes are an important consideration. One can simply look at the gross income minus cash taxes to see new income after taxes, although it is also possible to deduct expenses, such as interest paid on loans and fees paid for rents, to arrive at a more accurate estimate of final yearly income after all expenditures. This number can be used to calculate general financial health, and may be made public in filings made by publicly traded companies.
Occasionally, people or companies have trouble paying their cash taxes, for a variety of reasons. Tax agencies may be willing to set up a payment plan, although the interest is usually quite high, and this is an important factor to consider. Some tax agencies encourage citizens to consider taking out loans or liquidating any available assets to pay taxes because this can be less costly in the long term than setting up a payment plan and managing the interest on it.
People who suspect that their tax liability is incorrect can consult an accountant for a second opinion on the matter. However, it is advisable to avoid accounts who claim to be able to guarantee a reduction in tax liability, or who claim fees as a percentage of taxes saved.
