Tax Law – What Do I Need to Know?

DescriptionA tax is any monetary charge levied on a person by a government agency in order to finance various public expenses and government spending. A person who receives money without his permission and later fails to return the amount is said to have “evaded” tax. Evasion of tax, or evasion of payment, and attempts to evade or misrepresent the true nature of the payment are also punishable by law. The penalties for evasion are more severe than for payment. People can be charged with criminal offenses including criminal evasion, criminal disobedience, false pretenses under the Sedition Act, and conspiracy to evade taxes, among others.

Who Would Pay: If you earn taxable income from any source, any amount received above the exemption limit is taxable income. So, if you receive a bonus for instance, and later fail to return the bonus, you would owe the Bonus Tax. Similarly, people who earn interest on their retirement accounts are liable to pay the interest on any amounts which exceed the eligible allowance. In case you own shares in any company, your profits thereon are taxable, while dividends received by you personally are not taxable.

Who Is Not Paying Taxes: All incomes, gains, and savings are subject to taxation. Income from sources within the United States are totally exempt from taxation unless otherwise specified. Income from sources outside the U.S., on the other hand, are subject to taxation. The same is true for estate taxes, capital gains taxes, and personal taxes.

Where Do You Stand For Tax Time? There are three basic taxation systems known as progressive, proportional, and flat tax systems. Progressive taxation starts with taxes payable immediately at the time of earning income and accrue gradually. proportional taxes include exemptions equal to a certain portion of the national minimum wage, capital gains, dividends, and standard deductions. Flat tax system is similar to the graduated system. However, it does not have progressive or proportional taxation.

How Is My Tax Rate Calculated? Gross receipts taxes are calculated as the amount by which the market value of a property is less the amount that the property’s market value at the date of sale, less the amount that the depreciated value of the property is less. A formula is used to determine the amount of tax to be charged. In a progressive tax system, the initial tax rate will always be higher than the final consumption rate. A proportional tax system will have a lower initial tax rate than the final consumption rate, but a higher final consumption rate.

What Are Some Examples of Income? Income from all types of business transactions are subject to tax. Business income is subject to capital gains and dividends, both of which are capped under the provisions of a progressive tax system. High-income earners may also be subject to payroll taxes. Self-employment income is not taxable unless it is under a trust and controlled by an individual, corporation, or partnership.

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