The US tax system is set up on both the federal and the state level. There are several taxes which citizens must file. These taxes include: income tax, capital gains and sales tax. The federal tax and the state tax are two different taxation systems, where the state tax has other divisions under the various states' payment system.
The U.S is one of two countries in the world which charges tax from both its non-resident citizens and their resident aliens in the same manner they do the residents of the US, the other country that does this is Eritrea.
Taxes are imposed on the net income of individuals and corporations by the IRS. Citizens and the taxes they pay are calculated worldwide under the US taxation rules. The Tax is calculated on the income being generated from different sources used by an individual. Most business expenses are reduced tax incomes, though some limits apply to certain business expenses.
Individuals and businesses can make certain deductions from their taxes being filed if they can be claimed as a charitable contribution, medical contribution or home mortgage interest.
PAYROLL TAXES OR INCOME TAX
Payroll taxes are imposed by the federal and state governments. This taxation system is levied on both employees and employers at the combined rate of 15.3%. The benefits can only be enjoyed by individuals on the first $106,800 of their earnings. Employers must withhold the taxes on the wages of their employees. The unemployment tax and certain other taxes are levied on the employer.
PROPERTY TAXES
The property taxes are levied by the local authorities of the state and by some other special authorities based on fair market authorities. Schools and other properties owned by the government are separately governed under various taxation systems. Property tax is generally imposed on the property and the other business properties under different heads.
Property tax rules and rates vary on a yearly basis, ranging between 0.2% to 1.1% of the property’s value, as per the state's rules and regulations of taxation system.
SALES TAX
Sales tax is charged by the state based on the cost of the sale of goods and services rendered to the customers. Sales tax rates vary widely ranging from 0% to 13.5%, and may vary within a jurisdiction on the various goods and services. The sales tax is collected by the seller at the time of sales from the customers and is then paid to the taxation authorities at the time of making the tax payment.
The sales tax is even levied or charged on the goods and services being imported from the other countries, and the payment of this tax needs to be paid before they are legally imported. The rates of tariff or the duties vary from 0% to more than 20% depending on the country of origin. The sales tax is a state tax which is charged from the customer and varies from state to state.
ESTATE AND THE GIFT TAXES
The estate and the gift taxes are imposed by the federal government, some state governments and by some of the locals on the transfers of property by will, through lifetime donations or by inheritance.
Similar to the federal income taxes, federal estates and gift taxes are imposed on the worldwide property of the citizens of the country.
Taxation system for individuals and the businesses is different as the incomes generated from the sole proprietorship business are charged as the personal income of the individual. The income being generated from the partnership form of a business is also charged as the personal income of the individual partner, as the tax is levied down on the partner’s income and not on the partnership. Partnerships are required to file a return, but it is just an informational return.
Corporations are a separate legal entity and are charged different tax rates from the personal tax rates. Corporate taxation is subject to a double taxation system, which means that the corporations pay their taxes on the earnings and then what is left after the payment of taxes is then distributed as dividends to the stakeholders and then the taxes are charged on the capital gains.
The taxation system is quite interesting, if understood by individuals and businesses. If you are baffled by the various taxes and what they are for, seek knowledge and advice from Don Bell Law. Tax professionals are knowledgeable in all tax forms that businesses and individuals must file.
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