Essay On Income Taxes

Income taxes, two simple words that generate such intense sentiments in millions of people all over the world. Income taxes are not a new concept by any means. While taxes have existed since the beginning of civilization, they were not collected in the United States until the 1860s during the Civil War. In 1913, income taxes became a permanent fixture in American society. To comprehend income taxes, we must first understand income. There are four kinds of income: economic, accounting, cash flow, and taxable. First, economic income is very subjective and based on changing values. Economic income includes things such as opportunity costs, market value changes, and asset values. Likewise, accounting income is subjective as well but is based on accruement. Accounting income includes things such as revenues, expenses and realized gains or losses. Oppositely, cash flow income is very objective. It is simply the amount of cash that flows in and out of a person’s or company’s finances. Finally, there is taxable income. This income is objective and based off a person’s or company’s cash flow income and regulations set by the Internal Revenue Service. What are income taxes?

Tax breaks are provisions for taxpayers to legally pay less income tax under certain circumstances. Examples of individual tax breaks include 401k plans, income allowed to be earned before taxation based on personal characteristics, home mortgage interest deductions, and employer-provided health care plans. Two common business tax breaks are accelerated depreciation and domestic production. These tax breaks are referred to as loopholes by people not receiving the break. For example, having children is defined as a tax loophole by someone who chose not to have children. The parent receives a tax break that the individual does not receive. Therefore, the parent found a “loophole” in the tax