Personal Income Tax

RECENT NEWS
New York Times  Feb 26  Comment 
A proposal from Representative Dave Camp of Michigan would collapse seven personal income tax brackets to two and lower the corporate tax rate.     
Clusterstock  Dec 13  Comment 
CNBC ran a story yesterday with the headline "The rich do not pay the most taxes, they pay ALL the taxes." The story has thousands of Facebook shares. And its premise is completely false. The article goes on to present data regarding the...
Forbes  Nov 25  Comment 
Fun facts from Connecticut's tax amnesty: The largest single payment was $20 million. One payment was for a debt that dated to 1988. Roughly 665 corporations participated and paid back taxes of $91.3 million. An additional $21.4 million was...
Benzinga  Nov 22  Comment 
HomeStreet (NASDAQ: HMST) (“the Company”) announced today that President and CEO Mark K. Mason has exercised options for 200,000 shares of HMST common stock. The exercise represents 71% of Mr. Mason's outstanding vested...
Reuters  Sep 24  Comment 
Tax revenues for U.S. states soared to their highest in 25 years in the second quarter as personal income tax collections reached record amounts, U.S. Census data released on Tuesday showed.
Forbes  Sep 23  Comment 
Utah has a generous personal income tax exemption for dependents. The bigger the family, the bigger the exemption. Democratic state Sen. Pat Jones would like to change that. She is going to propose legislation that would eliminate the exemption...
The Hindu Business Line  Sep 18  Comment 
Net direct tax collection rose 12.7 per cent to Rs 2.38 lakh crore in first six months of the ongoing fiscal mainly on account of growth in personal income tax collection.The net direct tax...
The Hindu Business Line  Sep 5  Comment 
Gross direct tax collection grew by over 14 per cent in the first five months (April-August) of this fiscal. Direct taxes include personal income tax, corporate tax, securities transacti...
Forbes  Jul 20  Comment 
Art Laffer's made a proposal that the US should be collecting sales tax on online sales properly and then using that cash income to reduce personal income tax rates. There's an article here and the full paper here. His point isn't so much that...
New York Times  Apr 17  Comment 
Just when the wealthy will pay their taxes is something of a mystery and complicates Treasury planning.     




 
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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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