Regulations of Income Tax in United States | Get Financial Freedom Tips | Transform Your Financial Future


Friday, November 4, 2011

Regulations of Income Tax in United States

United States has adopted some progressive rules for taxable income of individuals, trusts, partnership companies etc . In America tax is collected by the internal revenue services which is the branch of United States treasury.In simple words , gross income includes income for all sources less deductions in United States. Deduction or exclusion is a thing which the taxpayer need not to consider while calculating income of their tax. The deductions are specifically given by the congress such as employer-paid health insurance or returns from tax-exempt instruments in the form of interest.Apart from these nothing can be taken as deduction.

Regulations of Income Tax in United States

There are 2 types of income : 

1. Ordinary Income : - Ordinary income includes wages , salary , profit from business , return from investment in stock and shares as a dividends.

2. Capital Gain : - It is the profit which is gained on account of sale and investment . Long term capital gain has got some preference in the rate like it charges lower rate than short term capital gain.

When tax is calculated for ordinary income the the rate is determined as a slab system. As income of individual increases tax rate will also increase .

In case of capital gain there are also different rates which depends the source of capital gain like real estate ,business etc.

Arguments which don't favor US Income Tax law : - There are lot of schools which don't favor the tax .One school of thought views taxation as the justified way of income distribution.There is another thought that views taxation as the governments’ way to enforce power on individuals and other income earners like company, corporations, trusts etc. Some hold the view that taxation is a technique of federal government to decrease the power of states. Income tax system in a way encourages tax payers to expend rather than save because interest on saved income is also taxed.

1 comment:

  1. It is so true about people not saving because that income is taxed. There is just no incentive for saving unless it is into a tax-sheltered account like an IRA or 401K. One of my co-workers used to work for a divorce lawyer, and she said many of his clients refused to put savings anywhere that the money wasn't safe from taxes.