Clear Answers for Common Questions

In the United States, each state has the right to levy its own income tax. Some states choose to charge an income tax, while others do not. The states that do not charge state income tax are Alaska, Nevada, South Dakota, Washington, Texas, Wyoming, and Florida. All other states impose ...

Back taxes are taxes to a national government owed from previous years. Because they were not paid when they were due, the taxes will also typically incur interest and fines until they are dealt with. It is highly advisable to deal with back taxes as quickly as possible, because many ...

An Internal Revenue Service (IRS) levy is a garnishment of wages, additional assessment of income taxes or government payments like social security and disability. A levy can also refer to the ability of the IRS to claim monies owed by seizing your bank account or by selling your assets. An ...

A tax loss carryback is similar to the tax loss carryforward. The principle difference is that a year in which a loss is noted is not carried forward to a subsequent year. Instead, the carryback is applied to a previous year when you paid a lot in taxes, and allows ...

Estate taxes, also known as inheritance or death taxes, are taxes imposed on the estate of a deceased individual. They are one of the oldest forms of individual taxation in the western world, with records indicating use as far back as the days of Aristotle. In the modern era, both ...

A flat tax is a percentage charge applied equally to everyone, regardless of their income level, investments, or other financial characteristics. The tax is "flat" because it can be graphed against any other factor and still result in a flat line, meaning that the revenue generated doesn't vary with ...

A withholding tax is an amount of money deducted straight from money you’d normally be paid, most often by employers, but occasionally by financial institutions, or if you’re lucky enough, from a large jackpot in a lottery. For the basic paycheck, the employer uses the withholding tax to ...

A tax deduction is a reduction of a taxpayer’s total income that decreases the amount of money used in calculating the tax due. Essentially, it's a break granted by the government that reduces taxes by a percentage that is dependent upon the income bracket of the taxpayer. A ...

In the United States, self employment (SE) tax is the tax primarily levied upon individuals who work for themselves — self-employed people. It is a Social Security and Medicare tax that is very similar to the taxes withheld from the wages of people employed by another person or business ...

Though using an accountant or a professional tax preparer has some conveniences, preparing your own taxes allows you to maintain full control over the process. You can work at your own pace and save the money you would have paid to a tax preparer. As such, many people choose to ...

Back taxes are taxes owed from a previous year or period. When a person owes taxes, but does not pay them when they are due, the result is back taxes. Likewise, underpaying tax obligations also results in back taxes. A person may underpay taxes or fail to report taxable income ...

A tax rate is the percentage of your taxable income, which in a progressive system like that used in the United States, may increase or decrease with increases or decreases in taxable income. Under this system, percentage of tax taken from your income or tax rate is based on the ...

A unified tax credit lets someone offset estate or gift taxes incurred within a given period, reducing the amount of tax that needs to be paid. This helps to lessen the financial liability that normally comes along with transfers of property. A single credit is available for both types of ...

A tax loss carryforward is a technique used in accounting, which can allow you to report losses up to seven years after they occur (in most cases) to minimize paying taxes in a year when a company or an individual has had a high profit. Sometimes this occurs naturally as ...

A tax lien is placed on an individual or business by the Internal Revenue Service (IRS) when past-due taxes are owed but have not been paid. The IRS places a lien on the property, until all taxes, fees, and/or penalties have been paid. Tax liens can be settled ...

Double taxation occurs when a taxpayer is taxed twice for the same asset or income. This happens when taxing jurisdictions overlap and a transaction, asset, or income amount is subject to taxation in both jurisdictions. When an individual faces this situation, he or she may lose a significant portion of ...

A progressive tax is a tax rate applied to either income or profits, or spending, that increases as income/profits, or spending increases. This is the tax system used in the US, and in many other countries. Those who make the least amount of money tend to pay the lowest ...

It’s important to understand the distinctions between a tax credit and a tax deduction, since they are two different ways of reducing the total taxes you will pay. When you first start deciding how much you will pay in taxes, you are allowed certain deductions, like those for each ...

Before-tax income is quite simply the income a business or private individual makes prior to taxes being deducted. This may also be called pre-tax income or gross income. There are several reasons why understanding the before-tax income can be important. If you’re a shareholder in a ...

Come April 15, we all have to deal with taxes. Whether you file them yourself or hire a professional to do them depends on several factors, starting with how willing you are to spend the required time working on them. A professional will charge you $100 US Dollars or more ...

A lien is method by which a lender can secure, restrict the use of, or encumber property if debts owed are not paid in a timely fashion. A tax lien is the government’s right to encumber property when taxes owed are not paid. This is slightly different than a ...

A tax bracket is a cut off point or division, used in taxation systems that progress or regress depending upon income. For instance in the US, the tax brackets are divided in the first few amounts into $10,000 US Dollar (USD) increments. Note these brackets don’t include other ...

The taxable wage base is generally considered to be the maximum amount of earned salary or wages that can be assessed for the purpose of collecting Social Security taxes. While it is possible for the gross wages earned in a given period to be identical with the assessed taxable wage ...

If you can’t pay your taxes on time, you’re certainly not alone. There are many people who realize too late that their withholdings during the year were insufficient to cover their taxes. There are some dos and don’ts that can help you negotiate a situation where you ...

Since much legislation throughout the United States is fairly uniform, people may assume that laws concerning income taxes are as well. However, every state is not the same when it comes to taxation, especially in the case of income taxes. Some states do not levy any income taxes, at least ...

The term tax deferred refers to the postponement of paying taxes on earnings until a later date. In an investment situation, money allowed to grow in a tax deferred account is not taxed until it is withdrawn. Some examples of investments on which tax payments are deferred are individual retirement ...

A flat rate tax is a payment made to the local government on income earned. The rate is the same for every citizen and business, regardless of how much money is earned. Like most tax revenue, the collected money is most often used to improve the local community in various ...

The Transfer Tax is targeted at wealthy individuals and families and generates less than 2% ($30 billion) of the federal government's annual revenue ($2 trillion). It consists of the Gift Tax, the Estate Tax and the Generation-Skipping Transfer Tax ("GSTT"). Opponents of the Transfer Tax refer to these ...

A progressive tax is a type of income tax system that is set up so people with a higher disposable income must pay a larger percentage of their income in taxes than those with low to moderate earning power. Historically, progressive taxation has been supported by economists and political scientists ...

Those who advocate a consumption tax to replace income taxes make several points that seem appealing to the average taxpayer. Rather than paying a tax on earnings, people would only be required to pay taxes on goods and services that they consume. This seems like a good idea on the ...

Scarlett O’ Hara, despite working hard to pay taxes on her beloved home Tara, ends up in significant trouble in Gone with the Wind when the taxes are raised to an amount far more than she can afford. This was an occasionally used practice among carpetbaggers and scalawags, after the ...

After-tax contributions may also be called voluntary contributions. They consist of any money you deposit in a retirement account or annuity after you have paid state and federal taxes on it. Any money you make that gets deposited into a retirement account still has social security taxes removed from ...

Tax evasion is usually understood to be an act in which an individual intentionally chooses to not pay income taxes due. This act of not paying taxes may be conducted by simply chooses to not file an income tax return, or choosing to not include information about taxable income on ...

Property tax is a levy issued by a government on a person's real or personal property. The property is assessed to give it a value, and then that value is taxed. The amount of tax owed is determined by multiplying the fair market value of the property by the ...

A proportional tax, also known as a flat tax, is a system under which the percentage of tax taken from a person's income remains the same no matter how much money is earned. This type of system can be applied to the income of an individual, or to an ...

Taxable income is gross income made by an individual or business that is considered taxable by a state or country, or both in the US. There are certain things, depending upon income level and other country-mandated deductions, that are reduced from the amount of income considered taxable. For example ...

In the United States, a tax refund is the result of having taxes withheld on earnings that amount to more than a person owes in income taxes for a calendar year. Federal and state taxes are withheld at a specified amount each pay period, and when the year ends, each ...

A tax rebate may be a partial sum of money refunded to people from paid taxes, or it may be an amount by which you reduce your taxes before you pay them. To many the term tax rebate connotes the happy idea of a government sending back some amount of ...

Sometimes referred to as an assessment roll, the tax roll is a list of all property that is subject to taxes. Tax rolls are a common instrument of use for cities, townships, counties and parishes. The roll will identify every taxable property that is physically located within the jurisdiction. This ...

Underwithholding is a situation in which an individual or business does not have enough income tax withheld during the course of the year. This will lead to owing a substantial amount of income taxes when filing the return for the calendar year, which may create a significant financial burden. In ...

Carbon taxes are taxes which are applied to fuels that generate carbon emissions as they create energy. Several nations use carbon taxes as an attempt to encourage businesses to pursue alternative fuels and to promote environmental consciousness, and some economists have proposed that more countries around the world should create ...

There is a great deal of dispute on how long you should keep tax records, and what should be included in those records. Is saving a return enough, or do you need to keep copies of W-2s, receipts for expenses, and any forms filed in addition to your business ...

Tax deferrals are situations in which the collection of taxes on generated revenue is delayed for a specified period of time. The main function of the tax deferral is to create a situation where individuals and business entities do not experience undue hardship on income that is not being actively ...

A triple exemption is a type of bond or bond fund that is not subject to federal, state, or local taxes. Municipal bonds as well as other types of bond issues may be structured as w triple exemption. The process means that no taxes are withheld from the dividend or ...

A regressive tax can be defined as a tax that tends to increase the total percentage of income paid on those who must pay the tax. In contrast, those who have a higher income pay less of their total income on items taxed. A tax can also be considered regressive ...

The term tax relief refers to tax breaks and write-offs that reduce the amount of tax due or otherwise provide concessions for taxpayers. It can be granted on a local, state, or federal level. In the United States, however, the term is most often used in conjunction with federal ...

Corporate taxes are any type of taxes that a corporation is obligated to pay to local, state, and federal tax agencies in exchange for the privilege of being allowed to conduct business within the applicable jurisdictions. In most cases, each jurisdiction provides a clear set of guidelines for calculating the ...

If you are filing taxes on your own, having tax software can mean saving yourself hours of work, but with all the options available, how do you know which one to choose? Here are some questions to ask yourself when choosing the right tax software for your needs. Is your ...

FairTax is both a theory and a suggested plan to the US Congress that would eliminate all income taxes and the Internal Revenue Service (IRS) in its current incarnation. All taxes under FairTax, including social security, disability, or Medicare taxes would be eliminated, leaving Americans with a larger portion of ...

Tax bases, as they relate to communities, have to do with the total assessed value of all income and property that is present within a given community. Determining the value helps make it possible to calculate taxes that are due on the resources of the community, and thus create the ...

The accumulated earnings tax is an additional business tax that is paid by corporations who choose to retain accumulated earnings rather than pay out the earnings in the form of dividends to investors. As a tax on earnings that are to be diverted into settling outstanding debt or investing the ...

Death taxes are any type of taxation placed on the assets of a decedent when those assets are redistributed to beneficiaries in accordance with the wishes expressed in a legal will and testament. One of the more common examples of a death tax is the inheritance tax. However, a death ...

A tax schedule can refer to several different things. It can first refer to scales published by the Internal Revenue Service (IRS), which can help you determine your total tax amount. These are useful if you earn in excess of $100,000 US Dollars (USD) per year. They help you ...

Reaganomics refers to the economic policies of President Ronald Reagan during his presidency. It is also called trickle-down economics, the idea that investing in the top echelon of society, or cutting taxes to corporations, will be of economic benefit to all, allowing corporations to make more money, spark new ...

Cenvat, or the Central Value Added Tax, is a component of the tax structure employed by many countries in the western section of Europe. The inspiration for this tax is derived from a tax system that is generally referred to as VAT, or a Value Added Tax. Both Cenvat and ...

The tax gap is a term used by the Internal Revenue Service (IRS) and by many state and local tax agencies. It represents the difference between what is actually owed to tax-collecting agencies and what is really paid to them. It’s difficult to know exactly the exact tax ...

Getting an extension on a tax return from the US Internal Revenue Service is a fairly painless process and simply involves, in most cases, which form you must file. There are a couple of things you should know about filing an extension, especially if you estimate that you are going ...

The majority of US states assess a sales tax for many goods and services, but some have laws that exempt certain items. For example, California doesn't tax for most food items, but snacks are taxed. The average sales tax in American states is generally between five to seven percent ...

You filed your return, checked and double checked it, and added everything up to your satisfaction. As you’re reviewing your form after you mailed it, you realize you made a tax mistake. This may be good news if you owed taxes and forgot to take an important deduction, or ...

When you have a taxable income of $100,000 US Dollars (USD) or less, you are often required in state and federal tax documents to look up the tax you should pay on this amount. These tax tables help you figure out exactly what you owe, and can then be ...

Consolidated tax returns are a means of allowing corporations that are all part of an affiliated group to file one return for the annual period, rather than each entity filing separately. The ability to file together depends on the exact nature of the connection between the parent organization and any ...

A tax shield can be a means by which either individuals or businesses reduce their overall tax owed. There are numerous types of tax shields. For individuals, especially in the middle class or above, having to pay interest on a home mortgage is considered a tax shield. Businesses may take ...

A tax return is a document filed with state or federal authorities that declares a taxpayers liability for being taxed, based on their yearly income. Three outcomes are possible from filing a tax return: either the taxpayer has either been charged too much or too little for their income, or ...

A tax on earnings is a tax on income whether it be salary, inheritance, or profits from investments. This is often contrasted with a consumption tax, where taxes are imposed on those goods and services that are consumed. Some argue that consumption tax is more logical, since it is argued ...

Overwithholding refers to the practice of taking more taxes from a paycheck, usually as done by an employer or payroll clerk, than are required to pay the amount of taxes you will owe at the end of the year. If the employer has practiced overwithholding, you’ll usually note this ...

Deferred accounts are plans or accounts that make it possible to accumulate resources in the plans without the need to pay taxes during the period of accumulation. The payment of applicable taxes is deferred or postponed until a later date, usually when the account holder begins to make withdrawals. Many ...

Many people are pleasantly surprised when Internet shopping is tax free. However, not all Internet shopping is tax free-it depends very much on where you live, and where the company from which you are ordering is located. In most cases, you are only assessed sales taxes on products you ...

The United States government raises the majority of its revenue through taxation. The primary tax sources are: individual income taxes, corporate income taxes, exise taxes, social insurance taxes, estate and gift taxes and custom duties. In the table below, we have illustrated the total revenue generated by individual income taxes ...

An estate tax is a tax that is imposed when property is transferred from a deceased individual to another individual, often a family member, without financial remuneration. Politically, the estate tax is a highly volatile subject which stirs passions on both sides. Some say it is like being taxed twice ...

Tax anticipation notes are one type of notes that are issued by municipalities. Generally, the tax anticipation note is issued by a state or local government with the understanding that a certain amount of taxes will be collected within an appreciable period of time. The note allows the municipality to ...

The term “poll tax” is used in two senses. In most of the world, it is a flat tax levied on every citizen of a region for the purpose of raising money for the government. In the United States, the term is used specifically to refer to a sum of ...

Using a professional tax preparer can be an excellent idea, especially if there isn’t a lot of time to keep abreast of the latest information on tax deductions. When preparing to make your first visit to a tax preparation service, there are a number of documents that should be ...

The process of inheritance tax planning is a strategy designed on minimizing the amount of inheritance taxes that heirs must pay on any assets inherited from a deceased loved one. In making use of effective and legal means of lessening the tax burden associated with the inheritance, it is possible ...

A tax shelter is defined as any sort of action taken to reduce the amount of taxes paid. In case of an abusive tax shelter, the Internal Revenue Service (IRS) feels that the tax shelter is illegal, and that the taxpayer is engaging in an activity with the sole goal ...

Tax planning is a broad term that is used to describe the processes utilized by individuals and businesses to pay the taxes due to local, state, and federal tax agencies. The process includes such elements as managing tax implications, understanding what type of expenses are tax deductible under current regulations ...

Many people know little about what type of expenses may be used as tax deductions. Even persons who choose to itemize deductions on the annual tax return may only be familiar with a small number of the many tax-deductible options that are allowed by the government revenue agencies. While ...

A vice tax, also sometimes called a sin tax, is the colloquial name for the sumptuary tax, levied on items considered to be immoral luxuries. The purpose of the vice tax can be double fold; it is often used to fund a special project, and it discourages the consumption of ...

Dubai, one of the seven regions which comprise the United Arab Emirates (UAE), is well known for its tax-free living. In fact, none of the seven regions of the UAE impose a federal income tax, even though they are legally within their rights to do so. In the Arab ...