Taxation in the U.S. is a complicated procedure. This is because taxes levied at different levels- the federal level, the state level and the local government level. Therefore, to understand the subject of taxation in depth, one needs to know the tax law basics. Income tax, property tax, sales tax and gift tax are some of the types of taxes. Taxpayers can be individuals, companies, trusts and other kinds of organizations.
Income tax is imposed at all the three government levels mentioned above. It is calculated at a specified rate. The income to be calculated for taxation purposes can be different from the actual income earned. Taxable income is arrived at by deducting exemptions and other reductions from the gross income. For instance, interest received from state bonds and municipal bonds may be exempt. If there are any credits, the taxpayer will receive a refund from the tax authorities. Different tax rates apply to different levels of income. Generally, the higher the income, the higher the tax rate applicable. There are several income brackets decided by the authorities and tax rates for each of these are fixed. Knowing the tax law basics will help one to compute one’s income tax correctly.
Sales tax is collected by the seller from the buyer at the time of sale. Use tax, on the other hand, is paid by those buyers who have not paid the sales tax when they have made some taxable purchase. Retail sales, leases, rentals from goods and a few services attract sales and use tax. These taxes are imposed by most states, cities and counties. The tax rate varies with jurisdiction. Retail traders therefore have to be aware of tax law basics.
These are either required to be paid by the manufacturer at the time of wholesale trade or the retailer at the time of the retail sale. Manufacturers too need to be knowledgeable about tax law basics. Tobacco, alcohol, gasoline and many other products and services attract excise taxes.
Most governments at the local level, that is, cities, counties and school districts impose property tax. This tax is calculated on the fair market value of the property. This rate is assessed once every year. The property tax rate varies with jurisdiction and also with the type of property. Knowledge of property tax law basics will help property owners arrive at the right amount of tax to be paid.