Most countries have a tax system in place to pay for public/common/agreed national needs and government functions: some levy a flat percentage rate of taxation on personal annual income, some on a scale based on annual income amounts, and some countries impose almost no taxation at all, or a very low tax rate for a certain area of taxation. Some countries charge a tax both on corporate income and dividends this is often referred to as double taxation as the individual shareholder receiving this payment from the company will also be levied some tax on that personal income.
Income Taxes – Income taxes in the United States are imposed by the federal, most state and many local governments. The income taxes are determined by applying a tax rate. Taxable income which is the total income less allowable deductions is assessed at different rates depending on total income. Taxpayers fall into one of seven brackets, depending on their taxable income: 10%, 15%, 25%, 28%, 33%, 35%, or 39.6%. Because the U.S. tax system is a progressive one, as income rises, increasingly higher taxes are imposed.
2018 Income Tax Brackets
|Rate||Individuals||Married Filing Jointly|
|10%||Up to $9,525||Up to $19,050|
|12%||$9,526 to $38,700||$19,051 to $77,400|
|22%||38,701 to $82,500||$77,401 to $165,000|
|24%||$82,501 to $157,500||$165,001 to $315,000|
|32%||$157,501 to $200,000||$315,001 to $400,000|
|35%||$200,001 to $500,000||$400,001 to $600,000|
|37%||over $500,000||over $600,000|
Sales Tax – A sales tax is a tax paid to a governing body for the sales of certain goods and services. Basically it is a tax on items you purchase and will vary from State to State.
Capital Gains – Capital gains are the profits from the sale of an asset — shares of stock, a piece of land, a business — and generally are considered taxable income. A lot depends on how long you held the asset before selling.
- Short-term capital gains tax is a tax on profits from the sale of an asset held for one year or less. Short-term capital gains tax rates equal your ordinary income tax rate — your tax bracket.
- Long-term capital gains tax is a tax on profits from the sale of an asset held for more than a year. Long-term capital gains tax rates are 0%, 15% or 20% depending on your taxable income and filing status. They are generally lower than short-term capital gains tax rates.
In 2018 the capital gains tax rates are either 0%, 15% or 20% for most assets held for more than a year. Capital gains tax rates on most assets held for less than a year correspond to ordinary income tax brackets (10%, 12%, 22%, 24%, 32%, 35% or 37%).
Dividends – Dividends are taxed at the same rate as long-term capital gains, which is 15% for most individual taxpayers. Dividends are profits businesses earn from operations that are distributed to shareholders instead of reinvested back into the company.
Deductions – A tax deduction is a deduction that lowers a person’s tax liability by lowering his taxable income. Deductions are typically expenses that the taxpayer incurs during the year that can be applied against or subtracted from his gross income in order to figure out how much tax is owed.
Standard Deduction – In the United States, a standard deduction is given on federal taxes for most individuals. The amount of the federal standard deduction varies by year and is based on the taxpayer’s filing characteristics. Each state sets its own tax law on standard deductions, with most states also offering a standard deduction at the state tax level.
Itemized Deduction – Itemizing your deductions means listing each deduction you qualify for. People do this when the sum of all their deductions is greater than the standard amount. Some things people might itemize include medical expenses, charitable donations and mortgage interest payments.
Tax Credits – Tax credits provide a dollar-for dollar reduction of your income tax liability. This means that a $1,000 tax credit saves you $1,000 in taxes.