Posts Tagged ‘Income’
Do You Know How Income Taxes Are Calculated?
This is the first of a series of 2007 Tax reference sheets that I’ll be sharing with you over the next month or so. This one focuses on some of the major federal income tax key numbers. I’ll do future ones for estate planning, retirement planning and business planning in the not too distant future so stay tuned.
Since federal income taxes are such a large part of most peoples life or expenditures, I thought that you might like a summary or reference sheet for some of the important figures for 2007.
Many people believe that if someone is in the 28% tax bracket, they pay all taxes due at the rate of 28% of taxable income. This is not correct. A couple having a taxable income of $125,000 does not pay 25% federal income tax on ALL of the taxable income… but only on everything over $63,700. The first $15,650 is only taxed at 10%, the taxable income from $15,560-$63,700 would be taxed at 15% and so on. The figures below is taxable income (after deductions and exemptions).
I’ll start out with the tax brackets for the 2007 tax year.
The figures below show the various “steps” on how the
marginal income brackets are progressively taxed higher.
Married, Filing Jointly:
$zero – $15,650 is taxed at 10%
$15,650 – $63,700 is taxed at 15%
$63,700 – $128,500 is taxed at 25%
$128,500 – $195,850 is taxed at 28%
$195,850 – $349,700 is taxed at 33%
over $349,700 is taxed at 35%
Is Avoiding Income Tax Moral?
The question of income tax is a thorny one. On one hand everybody hates it, but on the other, no one seriously considers challenging it. It?s like gravity. We simply accept it as if it were a law of nature.
Well it should be challenged, and here?s why. To avoid income tax by whatever legal means possible is entirely moral. And the reason lies in understanding exactly what income tax is, and what it is based on.
To tax a person?s income is to tax that person?s life. For consider this: when you work you expend time and energy. You devote forty or more hours each week of your life to trading your life?s time and energy for money. That money is therefore a tradeoff for the time and energy you put in.
If the government takes 25% of that money as tax, then it is actually taxing your life at the rate of 25%, and saying in effect that one quarter of your life belongs to the state. And if the government takes 50% of your money in tax (as the UK government has just announced as of writing), then 50% of your life has been commandeered by the state.
In order to make this point as clear as possible, consider the plight of black slaves in the early days of America. A slave was someone who did not own his life. His labour was expropriated by the slave owner. Given this situation you could consider the slave?s income tax rate to be around 80% – with the remaining 20% being taken off him as the cost of food and board.
State Income Tax Brackets and Rates
The easiest way to understand federal income tax, state income tax and all those other concepts that come with them is by understanding what the progressive income tax scheme is. Simply put, this scheme tells that the tax charge rate rises as income gets larger. For instance, if you compare federal income tax brackets to state income tax brackets, you will find lots of trend similarities.
Basically, except for those living in Alaska, Nevada, Florida, Texas, Washington, South Dakota, and Wyoming, every employee in the United States needs to know about state income tax. Majority of the states, 34 actually, impose state income tax aside from federal income tax. There are also cases where states allow cities to apply an income tax rule above the state income tax and federal income tax. This applies in New York City, for instance. In this city, aside from a state income tax (the maximum from which is 8.14%), there is also a city income tax that reaches to 4.00%. Living in a city that applies two tax rules is definitely more expensive if compared to the cases in “federal income tax only” cities.
The state income tax rates usually range from 1% to 10%. Although the state income tax rule carries different rates, it works in the same way as the federal income tax rule. California, has the highest rate of state income tax. It has a maximum tax rate of 10.3%. Illinois, on the other hand, has the lowest. It levies a flat tax of only 3%.
An introduction to Income Tax
The income tax may be defined as the amount of money that is paid to the government by individuals. The government deducts the income tax to fulfill the purpose of making the country growing financially. By deducting the income tax, government decides the actual income of you and according to that, the overall financial situation of the country can be decided. The direct tax that is paid by us to the government is called the Income Tax. The Income tax plays a huge roll in the economical growth of the country. The income tax helps the country to be economically stable. The income tax is deducted by the government from the income of individuals.
The origin of the word ‘Tax’ is ‘taxation’. The meaning of the word ‘taxation’ is ‘estimate’. Therefore, income tax means income estimate. It was the idea of Augustus Ceaser to apply the tax system on all around the world. Augustus is known in the history as the first roman employer. The popularity of the idea of the income tax was also reach in Greece, Germany and other countries by time. The income taxes also deducted based on occupations of the people.
Income Tax and government
The income tax plays a great role in the economical growth of the country. The money, which is needed to run the country, is paid by us to the government in the form of income tax. The government decides the actual financial situation of the individual. By collecting income tax, government can decide the amount of money that is circulated all over the country, people to people. The economical strength of the country is also decided from the amount of money that is paid to the government by the tax payers. The country runs due to the government and the government runs due to income tax. The income tax is a way for the government to get money for the country. The money that is collected by the income tax is used to make country more powerful in every sector. There are many fields where government has to pay money. The development of country is based on many features. A country is considered to be powerful if it is having a growth in every field such as Science and Aeronautics, Army and Navy Forces, Civil Services, Education, Information Technology, Film industry and many more.
Types of income Tax
There are various tax systems in the world. The tax systems vary country to country. The tax system in one country may be completely different than the tax system in the other country. We talk about the general types of tax here. Generally, there are two types of income tax.
1. Personnel tax:
The personnel tax is known as the tax deducted from the person’s individual income. Some part of the total income of individual is paid to the government according to the laws.
2. Corporate tax:
The corporate tax is for the industries. The total gain of company is taxable. Companies make profit and from that money, government takes its part in the form of income tax.