DEFINITION:
Taxes are mandatory contributions paid in cash by individuals or corporations and they’re levied by a government entity, if somebody don’t respect the payment of taxes, it’s tax evasion and is punishable by law. Taxes are the primary source of revenue for most of the government and as a result it’s very important that only citizen pay it, because they’re useful to finance government activities, including public works or services like roads, schools, public means of transport, hospital, pay the salary of public workers… , so they’re necessary for the betterment of the economy and all who living in the country. In the United States and many other countries in the world, income taxes are percentage applied to some form of money received by a taxpayer. The money could be income earned from salary, dividends or interest received as additional income, payments made for goods and services, and so on. Most governments use an agency or department to collect taxes. In the United States, this function is performed federally by the Internal Revenue Services.
TYPES OF TAXES:
From an accounting perspective, there are various types of taxes to consider:
- Income tax: A percentage of generated income that is relinquished to the state or federal government.
- Payroll tax: A percentage withheld from an employee’s pay by an employer, who pays it to the government on the employee’s behalf to fund Medicare and Social Security programs.
- Corporate tax: A percentage of corporate profits taken as tax by the government to fund federal programs.
- Sales tax: Taxes levied on certain goods and services; varies by jurisdiction.
- Property tax: Based on the value of land and property assets.
- Tariff: Taxes on imported goods; imposed with the aim of strengthening domestic businesses
- Estate tax: Rate applied to the fair market value (FMV) of property in a person’s estate at the time of death; the total estate must exceed thresholds set by state and federal governments.
Tax systems vary widely among nations, and it is important for individuals and corporations to carefully study a new locale’s tax laws before earning income or doing business there.
DIRECT OR INDIRECT TAXES:
Taxes can be levied directly or indirectly:
- A direct tax, such as the individual income tax, is levied on individuals and organizations and cannot be shifted to another payer.
- Indirect taxes, such as Sales and Value-Added Taxes (VATs), are instead levied on goods and services, not individual payers, and are collected by the retailer or manufacturer. An indirect tax is imposed on one person or group, then shifted to a different payer, usually the consumer.
THE DIFFERENCE BETWEEN TAXES, FINES AND FEES:
Not all government revenue is generated from tax collections. Fines and user fees are also charges levied by the government but are not considered taxes, because a fine is made to penalize an unlawful or harmful act (like fines for excess of speed) and a fee is levied to offset the cost of providing a service unlike of tax that they’re useful to improve the well-being of community.
ARE TAXES THE SAME FOR EVERYTHING?
A variety of factors affect the marginal tax rate that a taxpayer will pay, including their filing status (married filing jointly, married filing separately, single, or head of household…). Which status a person files can make a significant difference in how much they are taxed. The source of a taxpayer’s income also makes a difference in taxation. The U.S. tax system, as in many other countries, is designed to be progressive, indicating that higher-income Americans face higher tax rates, while lower-income people pay a smaller percentage of their earnings toward federal taxes.
HOW DO INCOME TAXES WORK IN THE U.S.?
In the U.S., taxation progressively increases as an individual’s income grows. There are currently seven federal tax brackets in the U.S., with rates ranging from 10% to 37%.29