A tax assessment is a necessary financial burden or any other sort of tax levied on a taxpayer by some governmental agency in order to support various public needs and government expenditure. Failure to repay, in addition to evasion or refusal to pay, the tax on these occasions is punishable by law. Taxation is the method of collecting financial responsibilities owed to the state, a national government, a county, a municipality or any other entity that might be ruled by a government. The amount of tax, the collection procedures and methods, and the consequences of non-payment are spelled out in a government’s taxation code.
All levels of government levy some taxes on citizens in order for the state, county, or municipality to function properly. Some taxes directly affect the citizenry such as sales tax or personal income tax. However, other kinds of taxes are charged to entities or individuals like property taxes, gambling taxes, sanitary tax and many more. These taxes increase a person’s or family’s income and thereby their financial condition. One kind of tax that is imposed not so indirectly but directly on a person’s income is the income tax.
Generally, most of us think of income tax when we hear the term “income” or “filthy rich”. In actual fact, income tax is collected by governments from people of all income levels. The highest earning taxpayers also contribute to this general revenue pot. The sources of income tax include profits made by businesses, salaries or wages earned by government employees, inheritances, and dividends from stocks or mutual funds. A small business is generally exempted from income tax altogether while self-employment income tax can be exempted or imposed on the self-employed.
There are two broad categories of indirect taxes: direct and indirect taxes. A direct tax is the type of tax that is collected by a government agency for the performance of its function. Examples are income tax, sales tax and value-added tax (VAT). Indirect taxes are collected by a government institution for the benefit of the public. Examples of indirect taxes are gifts, wages, premiums paid by citizens and foreign countries, and land or house rent charged indirectly by landlords.
There are many situations where an individual or a business is liable for both direct and indirect taxes. Examples are when an individual or a business is liable for income tax, sales tax or state tax separately from the salary he receives. In such a situation, both the salary and the income tax would be added up and the person would have to pay both direct and indirect taxes. When an individual or a business is liable for both direct and indirect taxes, he can choose to pay the tax assessor directly or have the tax deducted by the government before payment. It is better to consult a tax accountant or an income tax attorney before deciding the exact amount to be deducted or paid. In case of disagreement between the two, the court usually presides over the matter.
As far as income tax is concerned, it is calculated by adding up the total salaries and wages received by an individual during a year and then deducting expenses made for social security, retirement plans, etc. The remaining sum is then multiplied by the percentage of income which must be attributed to capital assets. There are various schemes which offer tax relief to individuals, businesses and corporations. The most common of these is the EITC and the payroll credits.