What is tax as a concept?
A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.
Tax is any charge of money or property that imposed by a government upon individuals or entities that are within the government's authority to collect.
Taxes provide revenue for federal, local, and state governments to fund essential services--defense, highways, police, a justice system--that benefit all citizens, who could not provide such services very effectively for themselves.
written By. Todd Rawle. March 6, 2024. Tax terminology refers to the vocabulary used to describe tax forms, concepts, and tools that individuals use to file, pay, and understand their taxes better.
For example, if you earn $1,000 in a state with a flat income tax rate of 10%, $100 in income taxes should be withheld from your paycheck when you earn that income. If, a week later, you take $100 from your remaining earnings to purchase a new smartwatch in a jurisdiction with a 5% sales tax.
Not everyone needs to file an income tax return each year. If your total income for the year doesn't hit certain IRS thresholds, then you may not need to file a federal tax return. But you may want to file a return anyway - there may be benefits to doing so. So, how much do you have to make to file taxes?
Taxes are ways that the government can collect money from its citizens to pay for things that the people need. The concept has been around for centuries. There are different types of taxes, including federal and state taxes on a person's income, the amount of money earned at a job.
However, taxes do not exclusively exist to generate funds for government spending. Policymakers can also use them to influence people's behaviors. For example, governments can impose “sin taxes” on things like gambling and buying cigarettes to disincentivize those activities.
1862 - President Lincoln signed into law a revenue-raising measure to help pay for Civil War expenses. The measure created a Commissioner of Internal Revenue and the nation's first income tax.
The financial requirements of the Civil War prompted the first American income tax in 1861. At first, Congress placed a flat 3-percent tax on all incomes over $800 and later modified this principle to include a graduated tax.
What happens if you don't pay taxes?
If you don't pay your taxes on time, the IRS begins charging penalties and interest on the tax you owe as soon as the tax deadline passes. It can also begin collection actions against you that include tax liens and seizure of assets.
| Government Spending | Amount Paid Out of $1 Tax Dollar |
|---|---|
| 🏛️ Social Security | $0.22 |
| 🏥 Health | $0.14 |
| 🚑 Medicare | $0.14 |
| ⚔️ National Defense | $0.13 |
Total tax rate measures the amount of taxes and mandatory contributions payable by businesses after accounting for allowable deductions and exemptions as a share of commercial profits.
High-Income Taxpayers Paid the Majority of Federal Income Taxes. In 2021, the bottom half of taxpayers earned 10.4 percent of total AGI and paid 2.3 percent of all federal individual income taxes. The top 1 percent earned 26.3 percent of total AGI and paid 45.8 percent of all federal income taxes.
Generally, you must file an income tax return if you're a resident , part-year resident, or nonresident and: Are required to file a federal return. Receive income from a source in California. Have income above a certain amount.
Although most Americans believe the middle class bears the heaviest tax burden, it's actually the top 1% who pay the highest federal tax rate, at 25.9%, the Tax Foundation analysis found. But the average tax rate paid by the top 1% has declined in recent decades, according to the Tax Foundation analysis.
Be Super-Rich. Finally, it's quite easy to pay no income taxes if you're extremely rich. In our tax system, money is only subject to income tax when it is earned or when an asset is sold at a profit. You don't have to pay income taxes on the appreciation of assets like real estate or stocks until you sell them.
For retirees 65 and older, here's when you can stop filing taxes: Single retirees who earn less than $14,250. Married retirees filing jointly, who earn less than $26,450 if one spouse is 65 or older or who earn less than $27,800 if both spouses are age 65 or older. Married retirees filing separately who earn less than ...
No, the president's income is not tax-free. Like other American citizens, the president must pay individual income taxes and file a tax return. The same laws that govern taxpaying American citizens apply to the president because, despite the office, they are still considered a citizen.
Income taxes are collected through withholding (or deducting) money from your paycheck. Employers deduct the money and send it to the government. People who are self-employed, such as entrepreneurs or ride-share drivers, also have to pay income taxes, but those taxes aren't withheld from their earnings.
What makes a tax simple?
Taxes imposed at flat rates can be easily collected at source, since the rate does not vary across taxpayers. Exemptions, deductions or credits that are universal create little complexity.
Do your children have income-generating assets in a custodial account? If so, be sure you understand the so-called kiddie tax. This law was passed to discourage wealthier individuals from transferring assets to their children to take advantage of their lower tax rates.
About 5,000 years ago, we see the first record of taxation in ancient Egypt, where the Pharaoh collected a tax equivalent to 20 percent of all grain harvests.
Without taxes, the government would have to create new money for every dollar it spends, or borrow back dollars it has previously spent, or some combination of the two.
During the American Civil War, President Lincoln introduced an income tax in order to raise funds for the war effort. However, the income tax was formally introduced in 1913 under President Wilson.
