- Mainly, there are two types of taxes – income tax and sales tax. Taxes are the major sources of revenue for the government. The state government and the federal government provide a number of services to the citizens from the revenue generated from taxes. Some of the services provided by the federal government are health care, national defense, social services and support for the Social Security. State governments support public schools, prisons and low income citizens through social services. State governments also provide water and garbage services, safe highways, police and fire protection at city and state level from the revenues generated from the taxes.
- Each country has its own system of tax collection. They collect taxes from individuals and business. Taxes paid by the individuals are income tax, property tax and consumptive tax. Income tax is applicable to all the individuals earning some income by any means. However, people whose income is under certain amount do not have to pay income tax. Owners of the property such as a home, commercial real estate or land have to pay property tax. Consumptive taxes are those charges we pay for using certain goods and services. For example sales tax on the goods sold by the stores, toll tax and hunting or fishing licensing fees come under the consumptive taxes.
- Taxes paid by the businesses are corporate taxes and payroll taxes. Corporate taxes are applicable to the businesses that generate income through a particular business. Corporate tax structure is complicated and based on the structure of a business. Sole proprietorship businesses pay business taxes through individual income tax, while there is a different payment structure for S-corporations. C-corporations held by the share holder need professional assistance to calculate corporate taxes. If a business hires some employees, they become eligible for payroll taxes also known as FUDA and FICA. Payroll taxes are calculated before the payment is made to the employees for the services rendered.
- Other than individual taxes and business taxes, there are some special types of taxes. They are capital gains tax and inheritance or estate tax. Capital gains taxes are levied on the investments such as bonds, stocks or real estate whose value is appreciated. Investments which incurred losses are exempted from the federal income tax or corporate tax. Estate tax is applicable when an estate is inherited as a result of the death of the owner. Estate tax can be quite steep once certain limit of the value of the estate is crossed. As a result, professional help is essential in estate planning.
- Taxes are calculated following certain rules known as the tax laws. The tax laws determine the procedure about how federal, state and local governments should calculate the taxes. For example, the United States of America follow the progressive tax system to calculate taxes. According to this system, total income is divided into different portions and for each portion different tax rate apply. Similarly, there are certain tax laws for corporate tax, income tax, estate and property tax, and excise. These laws are passed by the US congress and state legislatures and they are updated from time to time. These changes are reflected in your tax return forms and instructions to fill up the returns.
May 16, 2014