Income tax explanation

10 Feb

Income tax explanation

Timely and full payment of taxes is the key to the stable development of any state. In the entire system of taxation, direct taxes are the most important and bring the highest income to the general treasury. Income tax is one of the most important taxes among directly paid deductions.

Income tax definition

Legal entities pay a portion of their profits to the state treasury each year based on the results of their financial activities, while individuals pay income tax. In fact, it is a tax paid on the amount of all received amounts or dividends (interest). This is an income tax definition. 

The essence of this tax is that part of the funds received by these groups of individuals is transferred to the state treasury.

Some of the amount received is not taxed:

  • income from the sale of any property that you have owned for more than 3 years;
  • income that you received through inheritance;
  • income from items or rights that were given to you.

The following types of income are always subject to taxation:

  • income from the sale of any property that you have owned for less than 3 years;
  • income from renting out your property;
  • income received from sources that are not located in our country (foreign companies, etc.);
  • income received after a variety of prizes (participation in the contests, lotteries, etc.).

If the type of income cannot be attributed to one of the groups, the income tax authorities consider it separately.

This type of tax is paid in two ways:

  • without submitting a tax return;
  • completing and submitting a tax return.

For example, income tax on wages in many countries is paid without tax returns, automatic calculation, and transfer of the required amount. Now, you know an answer to “What is an income tax?”. 

Different types of income tax

Individual income tax is a direct income tax levied on a person’s income. A person means an individual, a simple partnership, a non-legal entity, and undivided property. In general, a person subject to individual taxation is required to calculate their tax liabilities, file a tax return, and pay taxes, if any, within a calendar year.

Business income taxes are direct taxes. The amount directly depends on the final financial results of the organization’s activities. The tax is calculated on the profit that the organization received, that is, on the difference between income and expenses. Profit, the result of deducting the number of expenses from the amount of income of the organization, is subject to taxation.

Also, do not forget about the local income tax.

You may have heard repeatedly that taxes are very high in the United States and that the income tax is progressive (the higher the income, the higher the tax).

It is worth noting the fact that both of these points of view, in their own way, are correct. More specifically, it all depends on the state in which the American lives.

The average American in the United States pays several types of taxes:

  • federal taxes (from 10% to 39.6% of annual income);
  • state taxes (up to 13.3% of income);
  • regional (local) taxes (up to 4% of income).

That is, at the highest rate, the total amount of income taxes in the United States for the year can reach a mark of 57%.The tax is calculated individually for each form of income. There are usually no questions about payroll taxation because, in this case, the employer calculates and pays the tax for you. If you need to make and submit a tax return, you need to do it yourself: visit the tax office in person or use the electronic form for submitting information about your income. That’s how income tax works.

Byan

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