Personal Income Tax

RECENT NEWS
The Straits Times  Mar 18  Comment 
March 19, 2015 1:22 AM THE upcoming increase in the top personal income tax rate will prompt more business owners to take their earnings as dividends rather than as a taxable salary, consultants say.
The Australian  Mar 5  Comment 
AUSTRALIAN workers are facing relentless and damaging increases in personal income tax over the next 40 years.
The Times of India  Mar 3  Comment 
Personal income tax rates will not be changed in the near term even as peak corporate tax rate will be cut by 5 per cent over a four year period beginning 2016-17, a top finance ministry official said.
The Straits Times  Feb 25  Comment 
February 26, 2015 1:53 AM EVEN with this week's tax hike for top earners here, Singapore still has the region's lowest personal income tax rates after arch-rival Hong Kong.
guardian.co.uk  Feb 12  Comment 
Year-on-year rises in income tax threshold, which cost the Treasury billions in lost revenue, unable to protect households from the economic downturn British household spending power fell in the first three years of the coalition government...
The Times of India  Feb 8  Comment 
The Narendra Modi government, in its first budget in July last year, had raised the personal income tax exemption limit from Rs 2 lakh to Rs 2.5 lakh.
guardian.co.uk  Dec 3  Comment 
Just £20 a year extra in the pockets of those on basic rate, while other tax changes will benefit Isa savers and some in 40% band The chancellor has taken his first steps towards reducing the number of people falling into the higher rate tax band...
New York Times  Nov 13  Comment 
The state is counting on collecting slightly more personal income tax this year than last. But it is not on track to do so.
Forbes  Oct 24  Comment 
October 15 marked the end of the extension period to file personal income tax returns and pay up for last year. So in our online poll last week we asked small business owners, “How do you feel about the income taxes you pay?”
guardian.co.uk  Oct 1  Comment 
Cameron casts his party as trade union for hardworking people in his final party conference speech before general election David Cameron launched an audacious bid to woo voters in next years general election by pledging to raise the personal...




 
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Federal Income Tax refers to the tax levied by a government on the income earned by individuals, corporations and other legal entities under its jurisdiction. This article deals with Federal taxes on indivduals. For an overview of other types of income taxes see the income tax article. In the United States the U.S. government taxes individuals who make over

Taxable income refers to the portion of your total income on which taxes need to be paid to the government. Various adjustments and deductions, including the standard deduction and personal exemptions, all lower your taxable income. cash loans


As mentioned above the government taxes income from a variety of sources.

Types of Income Taxes

Personal Income Tax

The government taxes individuals based on their total income for the year. Sources of taxable income include wages, dividends from stocks, gains from the sale of stock held for one year or less and unearned income (gifts over a certain amount). One can file his or her taxes individually or as part of a couple (if married). The filer adds up all of his sources of income and deducts any relevant deductions.

Deductions, Above and Below the Line, AGI and other cool stuff

The amount of income that a person makes is rarely the same as his or her taxable income (the actual amount that he or she is taxed on). Instead, the filer starts by calculating his or her gross adjusted income. This is his or her income after certain items known as above the line deductions are are subtracted. Some common above the line deductions include, include higher education expenses, losses on the sale of property and moving expenses.

Subtracting above the line expenses from Gross Income gives the filer his or her gross adjusted income. He or she now has the option of taking a standard deduction or itemizing his or her deductions. The resulting number is the filer's taxable income.

Example

Joe the Plumber has a salary of $100,000 per year.  He has no other sources of income, so his gross income for 2007 is $100,000. 

Joe, however, paid $5,000 in student loan interest during the year in addition to $15,000 in alimony for a total of 80,000 in above the line deductions.

Joe's adjusted gross income is $80,000.

Joe now has the option of subtracting the standard deduction from his AGI or itemizing his deductions. The standard for a single filer was 5,350 in 2007. [1] On the other hand, in 2007 Joe Donated 8,000 to charity in 2007, and paid 7,000 in state income taxes.

In this case his itemized deductions add up to 15,000, far more than the standard deduction, so Joe will choose to itemize.

After taking all of his deductions, Joe is left with 65,000 in taxable income.

Tax Brackets: The more you make, the more it hurts

The United States uses a progressive tax system. Under this system a person's income is divided into brackets. As a person earns more, he or she pays a proportionately greater percentage of his or her income in taxes. For instance, Joe has taxable income of 65,000. He will be taxed 10% on the first $8025, 15% on the next $25,000 and 25% on the next $32,000 or an average tax rate of 19%. Someone who made 50,000 would pay an average tax rate of 15%.

Click here to 'See 2008/2009 marginal tax rates below

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