Income Tax
According to the famous physicist, Albert Einstein, “The hardest thing in the world to understand is the income tax.”
Income tax is an amount of money that is imposed by a government (federal or state) entity on the income of a person or corporation. As with other taxes, the funds are used to finance government operations. Usually an employer withholds taxes from each employee’s paycheck and then the employee files a return with the government for each tax year. He may then receive a refund if he overpaid taxes or have to pay more tax if insufficient had been withheld from him during the tax year.
Tax systems often provide an opportunity to take certain deductions, for example, for qualified charitable contributions or for losses, such as losses in the stock market, that lower the amount of the individual’s taxable income. Deductions are subtracted from a person’s taxable income before the amount of tax is calculated. A tax credit, on the other hand, offsets the amount of an individual’s tax liability. In Britain, income tax was first imposed in 1798 and the funds generated from collection of the tax were utilized to finance war expenditures. In the United States, income tax was first imposed in 1861.
There are three types of income tax rates: progressive, regressive and flat. A progressive tax increases as an individual’s income increases; a regressive tax is imposed until a certain level of income is reached; and a flat tax rate is imposed on all income, regardless of the amount. If a progressive tax rate applies, an individual has less incentive to work more and earn more because the more he earns, the higher the rate of his tax liability.
In the United States, an individual may be subject to Federal, State, and even City tax on income. If a state and/or city tax applies, it can be deducted from the individual’s Federal tax liability. For people who earn money from more than one source, income tax payment can be a complex issue which requires strict record-keeping and complicated calculations. Individuals who do not have an understanding of these matters often seek professional advice to help with their income tax return.
For more infomation on taxes choose from the list below. |
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