The United States has a progressive income tax, meaning the tax rate increases with the amount of income. Income tax is collected by the federal - and sometimes state and local governments - to pay the expenses of running the government.
Who Pays Income Taxes
- Companies and corporations
- Partnerships and trusts
In the US, taxable income is defined as all income from all sources (gross income) minus any legal deductions and/or exclusions.
Personal Income Tax
- Ordinary Income - wages, salaries, tips, received spousal support, paid child support, business income and loss, taxable IRA distributions, rental income, unemployment compensation, Social Security benefits above a certain level, stock dividends
- Capital Gains - sales of investment property - real estate, stocks, bonds, non-inventory assets
- Received child support
- Student loan interest payments
- Deductible IRA, SEP, and SIMPLE contributions
- Nontaxable employee fringe benefits
- Self-employment health insurance premiums and half of self-employment tax
- Spousal support paid by the taxpayer
To calculate adjusted gross income you can either itemize your deductions or take the standard deductions given by the IRS, whichever is more beneficial to you.
2008 IRS Standard Deduction Amounts
- $5,450 for single filers
- $5,450 for married couples filing singly
- $8,000 for head of households
- $10,900 for married couples filing jointly
The tax rate varies according to tax brackets. Tax brackets start at 10% of adjusted gross income and go up for increasing intervals of income based on filing status.
Filing Federal Income Tax
When it comes to figuring taxes, many have no problems filing their own tax returns. However, especially when it comes to earned tax credits or itemized deductions, tax returns can get complicated quickly. Considering the consequences to not paying taxes, consulting a tax attorney is important.
Beyond ever-growing interest and penalties, it is actually against the law to not pay your income taxes. Failure to pay your income taxes results in criminal charges, leading to criminal punishment of fines and/or prison time.
If you have income tax questions or issues surrounding paying income taxes, speak with a qualified Tax Lawyer near you today. Federal tax law is constantly changing, and with state and local law also involved, you need an experienced, local tax lawyer on your side.
Tax Term of the Day
Latest Tax Question
There are certain factors that the IRS looks for on a tax return that can lead the IRS to select a given tax return for an audit. The IRS keeps the exact list of those factors and the formulas it uses to evaluate them a secret.
Category: Tax Law
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