Basic Guide to Income Tax

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Income tax bears directly on the income of individuals or firms and other entities. For businesses, it is often called corporate tax (tax on corporate income or corporate income-tax). It may be progressive, proportional or regressive.

A progressive tax levies in accordance with the amount earned, appreciating in percentage. For instance, if the initial earnings stand at $20,000 it can be taxed at 5%, the following $20,000 at 10%, and thereafter at 20%. The flat tax stays the same, while a regressive income tax can levy  tax income only up to a particular sum.

The usual approach in relation to personal income tax is to levy a taxpayer through the pay-as-you-earn format, with minor adjustments effected at the end of the tax year. Such adjustments normally entail remittances to the government or tax refunds, deductions are also common with the income tax systems.

Taxable income falls into the various categories which include land income, capital gains, income from employment, self-employment income, income from business, among others. In some countries, income tax is not payable by taxpayers whose total income consists of retirement income up to certain amount stipulated by law, or income from land not exceeding a stipulated amount.

Also excluded from the tax base is those subject to withholding tax or substitute tax; checks for the periodic maintenance of children, family allowances. In addition to household allowances, the majority of social pension funds, and the amounts paid under scholarship from the government to foreign nationals under international agreements.
 
For citizens of the United States, taxes are payable regardless of where they are based in the world. And the very first U.S. income tax was enforced in July 1861, at 3% as in respect of all incomes above $800 so as to assist in funding the American Civil War; it was eventually annulled and superseded by a different income tax in 1862.

Total income – deductible expenses and pension principal residence = taxable Income. Gross income tax – Net income tax = net; NET income tax – withholding tax – payments on account = balance to be paid or credited to income tax.

A payroll tax typically relates to two forms of taxes. Taxes that companies are compelled to deduct from their workers’ salary, are referred to as pay-as-you-earn (PAYE) or pay-as-you-go (PAYG) tax. Such deductions add to the remittance of an employee’s personal income tax responsibility; in the event that the remittances surpass this obligation, a tax refund or a carryforward will be granted to the employee.

 

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