Raguragavan Sreetharan | What Is Income Tax?

Raguragavan Sreetharan | Many people ask, “What is income tax?” This tax confuses most people and rarely does anyone have a good understanding of what it means. In this article we will go over the basics of income tax and hopefully better prepare you with your own tax knowledge.

Income tax is charged to both people and businesses alike. In either case it is calculated on the amount of money that the person or business makes. In the United States, the tax system is based on a progressive scale. This means that the more you make, the higher percentage that you have to pay is. The highest rate is 38 percent while the lowest is zero percent. (Raguragavan Sreetharan)

Raguragavan Sreetharan

Again, in most cases businesses and people are treated very similar in the eyes of tax law. If a business does not earn much money, then its tax liability will be less than one that might earn millions.

The progressive tax system was created as a way to be fair to all people. The idea is if you are not making enough money to live off of, then you should not be liable to pay income tax. On the other side, if you are making hundreds of thousands of dollars a year then you are more able to pay taxes that others cannot.

Raguragavan Sreetharan | This system is fairly easy to understand. The issue that complicates income tax is that the amount is based on your net income. Net means what is left after all your expenses, while gross income refers to the amount you earn before expenses. Hopefully this is a positive number!

The government has set up many different ways to deduct money from your tax returns in the form of an expense. You can deduct expenses from your mortgage payment, traveling expenses, home office expenses, even certain expenses when you buy a pet! Knowing which deductions are valid and which are not, can be extremely overwhelming.

Luckily affordable tax companies are starting to pop up all over the country. They will help walk you through what you owe, how much you made, and what deductions are open to you. Even though they charge a fee, they can often save you enough money in deductions that it will be worth it in the end.

It should be noted that income tax laws vary from country to country. It is always a good idea to seek a professional’s opinion before submitting your tax returns.

Raguragavan Sreetharan | Hopefully after reading this article, you have a better understanding of what income tax actually is. It can be a very daunting subject, but with a little studying it is easy to learn the basics.