Tax Base

Categories: Tax, Accounting

You're the mayor of a town with 5,000 people in it. A French company called Belle Fromage opens a cheese factory on the outskirts of town, specializing in the production of an especially pungent form of Limburger. A lot of your residents move away. A few months later, only 3,500 people remain.

Your tax base just dropped from 5,000 to 3,500. It will be a lot harder to raise the money for the community miniature golf course you had planned. There are 1,500 fewer people you can tax.

The term "tax base" refers to the total amount of assets a government has in its jurisidiction with which it can draw revenue. It's not the amount the government actually taxes; it doesn't equal total government revenues. It's the full pie from which the government takes its slice.

Related or Semi-related Video

Finance: What is Tax Basis?8 Views

00:00

Finance allah shmoop What is tax basis Well your basis

00:07

is your cost Your costs for assessing how much you

00:12

owe when the tax man coming you bought a thousand

00:16

shares of whatever dot com at twelve bucks a share

00:19

in its eye po and huzzah Three years later the

00:22

stock is at thirty You decide whatever dot com is

00:26

now passe because a kardashians said so it'll be over

00:30

taken by whenever dot com and you want to sell

00:33

So you dio and you live in a thirty percent

00:35

marginal tax blue state And that is your federal tax

00:39

rates in twenty percent But then you add in ten

00:41

percent for state taxes and whatever's left for obamacare and

00:45

you pay about thirty percent tax on your gains Well

00:48

you paid twelve grand to buy the stock and after

00:51

the sale you took in thirty grand when you sold

00:55

it for a gain of eighteen thousand dollars Your tax

00:59

basis on those shares is twelve grand so you pay

01:04

thirty percent tax on the eighteen grand of gain or

01:08

fifty four hundred dollars to net from the sale of

01:11

thirty thousand dollars worth of stock How much Yeah twenty

01:15

Four thousand six hundred dollars He fancy math Had you

01:19

just gotten those shares free I'ii they were gifted to

01:22

you and you had no tax basis or a tax

01:25

basis of zero dollars a share Well then your gain

01:29

would have been from zero to thirty grand or a

01:31

gain of thirty thousand dollars to then be taxed at

01:34

thirty percent or nine grand in taxes to net just

01:38

twenty one thousand dollars after the sale So having ah

01:41

high tax basis or at least being able teo point

01:45

toe one saves you money when the tax man coming

01:48

and well that's pretty much it alright he's gone Now

01:51

you can all come out Come on it's Okay it's 00:01:53.698 --> [endTime] safe

Find other enlightening terms in Shmoop Finance Genius Bar(f)