Tax Planning and Liability


Taxation is an unavoidable financial burden or any other sort of levy imposed upon a taxpayer by a government agency in order to finance various public projects and government spending. A taxpayer may be liable for tax on income, assets or savings and must pay the amount in accordance with the prescribed rates. The amount of tax actually collected is termed as personal income tax. A taxpayer may also be liable for state and local tax, property tax and sales tax, depending on his residence and place of residence. Evasion of or refusal to pay tax, and related prosecution is also punishable by law.

A government uses income tax slabs in collecting funds for the various public purposes. These funds are collected from the incomes of the taxpayers by the Internal Revenue Service either directly or indirectly. The indirect collection method is mainly used to collect taxes due from businesses and other organizations which do not deduct their income from their business accounts.

There are different types of indirect taxes, which are based on how the income is calculated. Rates of indirect taxes are based on the taxable income of individuals and companies, whereas personal income tax is based on how individuals and corporations personally use the resources of the community. Income tax on property is based on how properties are used. A property tax allows the government to assess how valuable a particular property is and therefore assess the rate of property tax.

A higher percentage of people who have low and medium incomes are required to paying taxes. On the other hand, a higher percentage of people who have high and very high incomes are exempted from paying taxes. There are many reasons why a person or a company has to be charged with indirect taxes. Some of the major reasons why a government charges indirect taxes are: increase in population, growth in capital value, increase in the level of goods and services provided, increase in taxes for some industries, increase in value of certain fixed assets, and increase in receipts of revenue as a result of special activities like building constructions and renovation and improvements in infrastructure.

In most cases, a company or an individual cannot escape the indirect taxes by using a trust to hold assets. However, there are some exceptions that include passing of an inherited asset to another family member or to an estate with sufficient compensation so as to exempt that person from paying the inheritance or income tax. Moreover, an asset cannot be owned by an individual who does not meet the requirements of paying the indirect taxes through a trust, provided that such individual does not have any other similar interest or ownership in the asset.

When an individual or a business uses a service, it is called service-based employment. This means that only certain work done by employees is considered for calculating the income tax payable. In case of business, there are two types of indirect taxes applicable: income tax assessment and capital gain tax. The income tax Assessor determines which of these two are more favourable to the income tax delinquent payer as per his needs and circumstances.

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