Many of US, who are just beginning to pay taxes does not understand many things about it. However, following the basics of it will help us where our money is going. So, here we are going to tell you about it in a short manner. So when you are using a Tax Calculator next time, you will get an idea about it. We are going to explain the basics only. Once you know it, you can explore more on your own.
The Basics of Tax
So, there is congress, which is the federal government of the united states. Let’s not get in too deep here. Now the federal government writes the Internal Revenue Code( IRC). This is a tax code book explaining the rules and regulations for collecting the taxes. Now the tax codes have a collection of taxes, the rules, rebates, refunds, and Credits. Now you must have heard or known about the Internal Revenue Service ( IRS). The IRS follows the guidelines of IRC. But the IRS works under the U.S Department of Treasury, so it is not an independent agency. Now IRS follows the tax codes as set by the IRC.
Since there are no fixed regulations, IRS can also help you in Revenue procedures, Letter rulings, and revenue rulings. Whenever a dispute arises, the federal court system interprets the tax code and how congress intent to use it.
How the Government uses the taxes
It is a natural question to ask. How the US Government’s internet to use the taxes. There are many areas, but if we are talking in a broad sense, then it spends the taxes on Welfare, National Security, education, National parks, and Social security. The major sources of taxes for the government are Sales taxes, real estate taxes, payroll taxes, and Income taxes. After they have collected it, they decide a budget for each of the departments. However, we are here describing in basic terms, but there is a very lengthy process of doing it.
How the Government Collects income taxes?
Now we are going to focus on income tax. The reason is simple for this, major of the taxes are collected from income. At the end of every financial term, whoever is making an income need to file a tax return. If a person pays too much tax, the person can apply for a Tax Refund. Two types of incomes are taxable. They are Earned income and unearned income. Earned income includes Salary, Tips, Wages, Commission, unemployment benefits, sick pay, and noncash fringe benefits.
Now, there is unearned income, which includes Interest, Dividends, Rents, Farm and Business income, profit from the sale of the assets, royalties, Alimony and Gambling winnings.
What is Allowed Deductions?
Sometimes, you can get some deductions from adjusted gross income. So whenever you want a deduction, you can calculate it via a Tax Calculator. Some of the expenses which are itemized are medical expenses, Charitable contributions, state, and local taxes.
So, this is the basic of taxes. However, when you go by states, the rules do vary. You can also check here for complete taxation in United states