In: Finance
What type of tax rate structure does the U.S. tax system apply?
What are the individual tax forms, and what factors are used to determine which to use?
What is taxable income, and how is it determined?
U.S. ADOPTS A PROGRESSIVE TAX SYSTEM. PROGRESSIVE TAX SYSTEM MEANS THAT PEOPLE WITH HIGHER INCOME ARE TAXED AT A HIGHER RATE, AND PEOPLE WITH LOWER INCOME ARE TAXED AT A LOWER RATE.
INDIVIDUAL TAX FORMS ARE USED TO REPORT INCOME AND CALCULATE AND PAY TAX. IT IS DUELY FILED AND SUBMITTED TO FEDERAL, STATE OR LOCAL TAXING AGENCY. THE DIFFERENT INDIVIDUAL TAX FORMS ARE IRS FORM 1040, FORM 1040A, FORM 1040EZ.
IRS FORM 1040- INDIVIDUALS WITH INCOME ABOVE $100000, INDIVIDUAL WITH DEPENDENTS AND WHO ITEMIZE DEDUCTIONS MUST USE THIS FORM.
FORM 1040A- INDIVIDUALS WITH INCOME BELOW $100000 AND THOSE WITH DEPENDENTS SHOULD USE THIS FORM.
FORM 1040EZ- INDIVIDUALS WITH INCOME BELOW $100000 AND WITH NO DEPENDENTS SHOULD USE THIS FORM.
TAXABLE INCOME IS THE AMOUNT OF MONEY THAT CREATES A POTENTIAL TAX LIABILITY. IT INCLUDES EARNED INCOME AS WELL AS UNEARNED INCOME. EARNED INCOME INCLUDES ANY WAGES, FEES, TIPS ETC. UNEARNED INCOME INCLUDES LOTTERY WINNING, CAPITAL GAINS AND LOSSES ARISING OUT OF INVESTING ACTIVITIES, STOCK DIVIDENDS ETC.
THE FEDERAL INDIVIDUAL INCOME TAX HAS SEVEN TAX RATES RANGING FROM 10% TO 37%. THESE RATES APPLY TO TAXABLE INCOME ADJUSTED GROSS INCOME MINUS THE STANDARD DEDUCTION OR ALLOWABLE ITEMIZED DEDUCTIONS. INCOME UP TO THE STANDARD DEDUCTION IS THUS TAXED AT ZERO RATE.