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Income Tax

Income Tax

Income Tax

What is Income Tax?

Income tax is a government imposed obligation for reporting and paying the required taxes for earnings during a tax year. Many different tax structures for income tax may be calculated, such as progressive, proportional, or regressive. Income tax is also levied upon business and companies, which is usually referred to as the corporate tax.
Income Tax requirements in the United States

In the United States, income tax is collected by the federal government, most state and local governments. United State citizens are responsible for paying federal income taxes no matter where they reside in the world and as such, may be subject to double taxation if they earn income in another foreign nation.

1. Basis for determining Income Tax

Every income earner is placed within an income bracket, which determines the rate for which they will be taxed. The lowest income earners, who earn between $0 and $8,500 in a taxable year, are subject to a 10% rate for income tax. The highest tax bracket is for income over $379,151, which is taxed at a rate of 35%.
The income is taxed on a graduated scale, which means earnings in between certain amounts are taxed at different rated. For example, an individual who earns $34,000 in one year will be taxed at 10% for the first $8,500 earned and 15% for the income between $8,500 and $34,000.

2. Tax filing classifications

A taxpayer may file their taxes and must define themselves as one of 4 different types: Single, married filing jointly, married filing separately, or head of household. The primary effect of the classification system is to determine the amount of the standard deduction the taxpayers may claim against their income. Deductions are credits against their income that act to lower the overall tax liability. For example, in 2009, a single tax filer could claim a $5,700 standard deduction, while a married couple could claim an $11,400 deduction with a $3,600 personal exemption.
3. Self-reporting requirement of Income Tax

All taxpayers are required to self report their income to the IRS. This is what is typically considered “doing ones taxes” or the services that are provided by tax preparation services. Following the required forms, a taxpayer is required to report all income derived from work, realized gains of the sale of assets (capital gains), and any other factors that determine ones income.
4. Exemptions and deductions

When determining the income tax required, a taxpayer is allowed to count certain funds received as non-income or certain costs as deductions. The following are some of the most common exemptions and deductions taken by individual taxpayers:
– Dependents Tax Credit and Child Tax Credit – Interest for property taxes paid by a homeowner – Local and state income taxes – Charitable gifts

Other sources of Income Tax

The usual source of income for most taxpayers is their yearly paycheck from their job. However, many other sources of income may count towards your tax filing. Capital gains from the sale of property must be counted as income. Also included are many government benefits, including unemployment income, inheritances, and certain gifts. Check with a tax professional to ensure you are not underreporting your taxes to protect yourself from an audit by the IRS.

Ratification of Sixteenth Amendment

Ratification of Sixteenth Amendment

Throughout the history of the United States, many citizens have protested the legality or constitutionality of  income taxes. There are those that question the legality of the government taking a percentage of money earned from citizens and some people equate income tax with slavery. Income tax became legal in the United States when the sixteenth amendment was ratified. The legality of income taxes was first challenged in Pollock v. Farmers’  Loan and Trust. 
That case limited congresses ability to impose direct taxes on individuals. According to the Constitution, all direct tax burdens are legally required to be distributed according to population. Prior to the Pollock case, tax rates were changed frequently and sometimes based on current events. For example, income tax rates were increased to provide funds for the Civil War. Income taxes were considered to be indirect taxes and could be easily changed. However, the Pollock case declared that income taxes were in fact a direct tax and unconstitutional.
The Sixteenth Amendment allows Congress to collect taxes on income from any source, on all people in the United States. The Amendment was ratified due to the case of Pollock v. Farmers’  Loan and Trust. That case declared a uniform  income tax unconstitutional. By ratifying the Sixteenth Amendment, congress altered the constitution to legalize a uniform income tax. Information within the sixteenth amendment, made it clear that all income, no matter how it was acquired, was subject to a federal income tax. 
Information on the Pollock case was utilized by congress to be sure that the ratified amendment was written in such a way that they would be able to alter the percentage and manner of which income taxes were determined. The Pollock case prompted congress to immediately add the legality of income tax to the Constitution.
Information from the case suggested that income taxes were not legal according the constitution and in order to change the Constitution, Congress had to ratify an Amendment. Therefore, Congress ratified the Sixteenth Amendment, which granted the legality of income taxes to the United States Constitution.
In 1909, there was a congressional resolution on the Sixteenth amendment which proposed income taxes. Information within the Amendment allowed income tax no matter what the source of income was. In other words, any money acquired, no matter in what manner, was now subject to income tax. 
The new Amendment overruled Pollock and legalized all forms of income tax. Information provided about the case, suggest that Congress acted immediately on the decision made in that case, as to avoid further disputes regarding the legality of income tax. The Sixteenth Amendment is frequently sited in cases which dispute the legality of income tax.

A Guide to Federal Income Tax

A Guide to Federal Income Tax

Income tax is the predominant levy in the United States of America. The tax collected on income allows the federal government to fund wars, build parks and roads, perform public services, and pay for current expenditures that aim to maintain a healthy balance in society.
The income tax is a tax levied on the income or wages of all businesses and individuals. Although various income tax systems exist, the United States incorporates a progressive federal tax on the population’s earned income. 
As stated before, the federal income tax is applied to both individuals and businesses who earn a salary or income. When the tax is enforced on businesses or corporations the tax is referred to as a corporate tax or profit tax. When the tax is levied on an individual, the individual income tax is a levy on the individual’s total income. 
Although deductions or write-offs are available (given the fulfillment of specific requirements) the same tax on a business is only applied to the companies net profits (the difference between their gross income the total expenses and whatever additional write-offs are present.
The progressive tax system of the United States income tax attaches varied tax rates to individual earners. Those citizens who earn more income are taxed at a higher rates. Although the rates, and the qualifying salaries vary, typically the highest tax brackets are those individuals who currently earn over $350,000 per year. This salary is taxed at 35%, meaning 35% of their gross salary is collected by the federal government. In turn the lowest bracket is generally around 20%, and applies to those individuals who earn minimum wage or slightly more.

The Truth About Income Tax Rates

The Truth About Income Tax Rates
Income tax brackets are the fundamental characteristic of a progressive taxing system. The United States of America taxes income based on an individual tax payer’s salary; those who earn more are taxed at higher rates while conversely, those who earn less are taxed at lower rates. Income tax brackets divide the taxpayer population by the salary earned; each bracket is attached with a corresponding tax rate or percentage. 

The percentage attached is the percent an individual is taxed at. For example, the highest current tax rate is 35%, and is applied to all individuals who earn over $373,650. In turn, the lowest tax bracket is 10% and is currently attached to all employees earning less than $8,375.

The income tax brackets are the true rate the taxpayer pays on their “last dollar” earned. The income tax brackets and the corresponding rates attached are not set in stone, but instead, liable to fluctuate based on the financial policy of the party in office. 

The income tax brackets place an obligation on those earning heft salaries to kick back a larger percentage and thus a larger sum of their income to supply the nation with essential public goods and services. The majority of citizens in the United States do not qualify for the top brackets, however, an overwhelming percentage of the total tax collected is collected from those in the top tax bracket.

A Guide To Federal Tax ID Numbers

A Guide To Federal Tax ID Numbers
A federal tax id number is an essential organizational method employed by the Internal Revenue Service. A federal tax id number is crucial to streamline the tax levy of the Federal Government. The necessity stems from the number of taxpayers (both individuals and businesses) in the United States. A federal tax id is in essence a tax file number that categorizes and records each taxpayer’s application and status. 

All individuals associated with running a small or big business utilizes tax id numbers or employer identification numbers. Each tax file number is registered with the Internal Revenue service through the employer’s identification system. A federal tax id consists of nine digit numbers. Each set of numbers is recorded by the IRS and the appropriate federal tax id is stored as the employer’s tax account. 

Although both forms of identification are nine digits, a tax identification number is held separately from a social security number. The need for a tax file numbers arises when the individual worker or owner of the business has an incorporated business, employees working under the business, or is engaged any money-making investment or policy associated with a business model. 
In essence, the federal tax id is crucial because all individuals who earn an income or profit are subjected to a federal income tax. Without filing a small business could effectively evade taxes, not only would this result in an illegal practice but the necessary obtainment of funds for the federal government would not be realized.

How To Do Easy Income Tax Calculations

How To Do Easy Income Tax Calculations

The income tax is the predominant form of levy for the Federal Government in the United States. The system affects all individuals who are working and of age to be legally declared as tax payers. As a result of its progressive system, the income tax associated with each individual will vary based on their income or more specifically, their salary. 
The Internal Revenue Service, through the policy of the political party in office and the tax rules established by the Federal Government, attach different percentage rates to different income brackets. Those who have higher annual salaries will pay a higher percentage of tax.
To figure out your specific income tax calculation you must first acknowledge the corresponding tax brackets and pinpoint where you fall. The tax brackets are somewhat simple; each bracket has a floor and ceiling based on annual salaries. To find your appropriate tax rate percentage you must simply observe your salary and match it up with the corresponding bracket. Currently, there are 6 brackets (10%, 15%, 25%, 28%, 33%, 35%) in the United States income tax system. 
The first step to figuring out your specific income tax calculation is to view your appropriate tax rate. Once this percentage figure has been realized you must then subtract all deductions or write-offs present with your particular tax case. In addition you must also realize the amount withheld by the federal government throughout the course of the fiscal year. 
The income tax calculation will be jumbled due to the multiple figures, however, an individual can use an income tax estimator to simplify the process. The income tax estimator will list all necessary components of the income tax calculation and tabulate the figures for you.

Understanding the FICA Tax

Understanding the FICA Tax

The Federal Insurance Contributions act or FICA, is the government agency responsible for collecting payroll taxes in the United States. The taxes collected under this federal department are used to fund Social Security benefits. 
As a result of the agency responsible for the obtainment of these funds, the tax associated with Social Security benefits is commonly referred to as the FICA tax. The FICA tax has been a fundamental levy in the Federal Government’s system of operations since 1935.
FICA is a tax that is collected by a federal tax department; this levying process is held separately from more common taxation because other funding is typically obtained through the Internal Revenue Service. The FICA tax is collected to provide the benefits for the elderly, the disabled, and hospital insurance for those in need. 
These benefits are funded by the Social Security system in the United States and health insurance benefits are delivered through the Medicaid tax. Both employees and employers in the United States are required to contribute to the FICA tax through payroll deductions and withholding a percentage of a given salary.
The FICA tax is typically collected at a rate of 7.65% on an individual or company’s gross earnings. The funds obtained are broken down through the delivery of 6.2% to Social Security, and 1.45% for Medicare. 

What are the Federal Income Tax Rates

What are the Federal Income Tax Rates

The federal income tax is the dominant source of revenue for the Federal Government of the United States. Through this levy, the Federal Government funds necessary public services and pays for current expenditures. The income tax rate is used to fund the armed services and the wars that are currently being fought overseas. 
In addition, federal income taxes are also used to fund government programs such as Social Security, Medicaid, and other government agencies that are responsible for aiding lower income individuals or families in the United States. The income tax is a progressive system that fluctuates in regards to income tax rates attached to each bracket. The fluctuations exist through government policy, however, those earn higher salaries always have a higher income tax rate attached. 
Income tax rates are attached to the specific income tax brackets. The income tax brackets and the corresponding federal income tax rates are the foundation of a progressive taxing system. The current income tax rates range from 10% (for the lowest earners) to 35% (individuals who possess the highest tax rates). The 105 tax rate is attached to individuals who earn up to $8,375 or jointly filed applications that total up to $16,750. 
The federal income tax rates attached to the specific salary yield the individuals percentage tax rate. For example, if a taxpayer earns $10,000 per year, the 10% rate will yield an income tax of $1,000. Each successive tax rate–15%, 25%, 28%, 33%, and 35%–are attached with higher salaries. Although the percentages account for a large percentage of one’s salary, the levy is collected throughout the year as the government withholds an individual’s income every pay cycle.

Federal Income Tax Explained

Federal Income Tax Explained

What is the Federal Income Tax?
In the United States of America, a tax is enforced on income earned by the federal, most state, and the majority of local governments in the country. The income tax in the United States is determined by applying a tax rate, which takes the form of a progressive model. Typically, as income increases, the coordinating taxable rate increases, meaning those individuals or companies who generate higher incomes are subsequently taxed at higher rates. 
Individuals and corporations in the United States are directly taxed and estates and trusts may be directly taxed on their undistributed income. Partnership formations are not taxed, but their partners are taxed on their proportionate shares of income. 
The Federal income Tax is widely based off an individual’s earned income; however, there are several types of credits that reduce tax and many types of credits that will reduce one’s income to subsequently reduce their taxable rate. 
The income that is being taxed under the Federal Income model refers only to the individual’s taxable income, meaning their total income less their allowable deductions. In this sense, income is broadly defined; the majority of business expenses, for example, are deductible which effectively reduces the particular entity’s taxable income. Furthermore, individuals may also deduct a personal allowance (known as an exemption) and certain personal expenses, including home mortgage interest, state taxes, contributions to charity, as well as many other items. 
Additionally, capital gains are fully taxable while capital losses will effectively reduce taxable income only to the extent of that gains obtained. Individual taxpayers will currently pay a lower rate of tax on capital gains and certain types of corporate dividends. 
Individual taxpayers will assess their particular tax standing by filing their Federal income Tax returns. Typically, when an individual files a Federal Income Tax return they will receive a rebate or tax refund in the form of direct deposit or a paper check sent by the United States Treasury Department. The majority of returns will be met with a refund because the amount of taxes withheld during taxable pay periods typically exceeds the total amount of taxes owed by an individual taxpayer. 
The Federal Income Tax is levied based on net taxable income earned by individuals or entities within the United States. The Federal Income Tax is graduated, meaning the tax rates of higher incomes are increased, whereas those who earn less will have a mitigated taxable obligation.
The Federal Income Tax rates are divided into brackets; the brackets are established based on income thresholds. Each bracket has a tax rate attached to it that is delivered in a percentage form. For example, in 2009 the tax rates varied from 10% (attached to the lowest earners) to 35% (attached to those individuals who earned over $333,000 annually. 
Federal taxable income is defined by the Internal Revenue Code and based off regulations issued by the Department of Treasury. The taxable income is the underlying payer’s gross income as adjusted less tax deductions. The majority of states and localities who impose the income tax will follow this definition, although some may incorporate adjustments to determine income taxed in that particular jurisdiction. 

File Taxes Online For Free

File Taxes Online For Free

How to File your Taxes for Free Online

Every fiscal year, the Internal Revenue Service will offer individuals (specifically taxpayers) a comprehensive list of websites that allow taxpayers to electronically prepare and file their income tax returns without any attached fees. 

To file your income tax returns for free, you must first visit the Internal Revenue Service’s online page, located at www.irs.gov. Towards the top of the page, there is a link towards the top of the page that will denote free filing for all individuals who meet the eligibility requirements of the program. The program offered by the Internal Revenue Service, known as ‘Free File’ completes the filing processes for the taxpayer with brand-name software or by satisfying online Fillable Forms. 

Free File is a complimentary federal income tax prep and electronic filing program made available to eligible taxpayers. Free File was developed through a partnership between the Internal Revenue Service and the Free File Alliance, an agglomeration of private sector tax software companies. All taxpayers can satisfy their federal income tax returns by accessing commercial software provided by any of the Free File Alliance companies. Those that wish to access Free File have until April 18, 2011 to file and pay their tax.

Who is eligible: The Free File program is only offered to taxpayers with a 2010 Adjusted Gross Income of $58,000 or less. That being said, each participating company sets their own eligibility requirements and not all taxpayers will meet the specific guidelines set by the underlying companies. Individual companies will offer their specific programs based on the taxpayer’s Adjusted Gross income, geographic location, and guidelines instituted by individual states. If a taxpayer is filing using the Married Filing Jointly status, the $58,000 AGI boundary applies to the adjusted gross income for both parties combined. 

All of the necessary software will be available to the taxpayer; no downloads are required to participate in the Free Filing program. Additionally, all Free File company sites are equipped with the most updated encryption programs to ensure privacy protection.

Some participating Free File Alliance companies will offer Free State tax return preparation and e-file. When you participate in this program, you must electronically sign the federal income tax return with either the previous year’s Annual Gross Income or with an electronic personal identification number. The e-filing PIN, which is a five digit number, is easy to obtain and personalized—the individual taxpayer chooses their PIN.

To investigate your eligibility requirements for free electronic filing, you must go to IRS website, access their free filing offer. After you have chosen this option you will need to select which participating company you’d like to file status with. There are currently 17 companies that offer the E-filing free tax forms; each company (as stated before) possesses unique eligibility requirements for those that wish to file. Additionally, the companies will offer their free filing status based on the state in which the taxpayer resides. 

 

CPA Federal Tax Return Status Income Tax Tax Deductions Tax ID Number Tax Preparation Tax Refund Tax Return Tax Software

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