Tax classification refers to the categorization of individuals or entities based on their tax obligations. This classification helps determine the applicable tax rates and rules for different groups, such as individuals, corporations, and partnerships. Each category has specific requirements and benefits, influencing how much tax is owed. Different tax classifications can also affect eligibility for deductions and credits. For example, sole proprietorships may have different tax responsibilities compared to limited liability companies (LLCs). Understanding these classifications is essential for compliance and effective tax planning.