Taxation is the collection of an amount from a person or entity for the payment of tax liability. The amount is either a fixed sum or variable, usually determined by the circumstances of an individual or organization. A tax is an unpaid financial burden or any kind of levy charged on a taxpayer by some governmental agency in order to finance various public expenditures and government spending. Evasion of or refusal to pay tax, and also conviction of tax evasion or criminal neglect in payment is punishable by legislation. Taxation varies in different countries and jurisdictions within the same country. There are many types of tax: income tax, sales tax, property tax, and local property tax are the major types of taxes.
Most of the time, income tax is the common type of taxation because it includes items such as interest and dividends and certain deductions, while sales tax on goods and services is collected from distributors for services sold. In states, property tax and local property tax are collected from property owners for assessment and collection. Income tax is the one type of taxation that is exempt from federal tax law. A refund is given to taxpayers when the full amount of taxes is paid. Refund amount depends on the particular tax scheme in use.
Taxation of individuals occurs on their personal income or assets. Income tax is based on the standard tax rate for each bracket, and tax liability is computed by adding self-employment tax, state income tax, and local property tax. Because of tax relief programs, most taxpayers can defer income tax payments until they reach a certain age. Taxation is normally assessed by the age of 65.
Self-employed individuals have to pay both income tax and sales tax on their income. Earned income is not subjected to income tax. Many professionals like doctors, lawyers, and accountants earn through business activities. These professionals may earn through commissions on services they render to their clients. Others earn through dividends from their own or other businesses.
Gross receipts taxes are taxes that are deducted in the final value of the sale or transfer of a property. Examples of gross receipts taxes include gifts, property transferred under a decedent’s estate, inheritance taxes, and estate taxes. Capital gains taxes are dividends subject to capital gains tax. Foreign currency exchanges that are treated as a business activity are subject to dual taxation.
The term W-2 is an improper name since it indicates the income of the individual who usually checks his or her paycheck. The classification of employees in companies is usually on wages and salaries. Federal tax law specifies the types of wages included in the calculation of workers’ compensation. W-2 wages are included in the computation of payroll taxes paid by many individuals.