Important Information About Income Tax in the United States
A tax is an obligation or a financial charge levied upon a citizen by a government agency in order to finance public expenditure and various personal expenses. A person may be charged with tax either for income or for assets. evasion or non-payment of tax, and therefore, resistance to or disobedience to tax, is punishable by law around the world. In some countries like the United States of America, the Internal Revenue Service or IRS, is the chief taxing authority while in other countries, the local taxation authorities are the ones who levy taxes.
Generally speaking, income or estate tax is meant to ensure that people who earn high incomes do not evade or minimize their tax liability. In simple terms, it is intended to collect the amount of tax that an individual or family would have to pay if they had no other income or assets. There are two systems in which you can pay taxes: income tax and progressive tax system. Progressive taxes are based on your net income while you pay income tax on the actual amount of income that you earn. Generally speaking, progressive taxes are more favourable because they gradually increase the amount of tax that you need to pay over time, as your income increases.
The progressive tax system provides opportunities to high-income earners to minimize their tax liabilities. In the flat tax system, high-income earners have to pay their taxes based on their actual income from work every single month. This is because the taxation level pertains to the actual level of income from all sources, and not just one source of income. Hence, in case of a flat tax system, high-income earners will have to pay a proportional tax to the government. Progressive tax system allows high-income earners to pay their taxes in predetermined amounts.
The basic principle behind income tax assessee is to collect taxes according to one’s actual income from all sources. The government uses different methods to arrive at the amount of taxes to be collected from an individual. Some governments consider the annual income of an individual, while others consider the total income obtained during a certain period of time. Some of the countries also use lifetime income earned in a particular year by an individual and take the average of it. A few other countries prefer to make an assessment using all of the factors that affect an individual’s income such as investment earnings, expenses, debts, etc., and then apply a universal percentage or a graduated rate of taxation.
The government assesses taxes on several sources such as income taxes, estate taxes, gift taxes, and many others. Estate taxes are levied on properties held by an individual during his lifetime. Although estate taxes are payable only upon death of the liable individual, they do apply until such time as the heir retires, emigrates, or sells the property. These kinds of taxes are deductible from the income of a taxpayer under certain circumstances.
Income taxation is another example of indirect taxation. This form of indirect taxation is usually applied to ensure that only a portion of an individual’s income is subjected to direct taxation. Many states also apply certain regressive taxes, which, according to a law, are deducted from taxable income during the low-income phase of a monthly benefit, thereby reducing the amount available for other expenditures.