Four Types Of Income Taxes

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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…show more content…
The tax brackets are a simple concept. Anything between $0 and limit a is tax-free. Anything between limit a and limit b is going to be taxed at the marginal rate (the amount of tax owed on the dollar earned). In other words, if you earn up to $50, you will pay no taxes. If you earn $100, you will pay $25 in taxes ($0 on the first $50, and 50% of the second $50). Continuing, if you earn $1000, you will pay $475 in taxes ($0 on the first $50, 50% on the next $950). Every tax system in the world is a progressive tax system. Additionally, no country in the world taxes fixed living…show more content…
Tax deductions are expenditures made that the government deems favorable and encouraged. Deductions include child care expenses, medical expenses, donations to charities and education expenses. These deductions are subtracted from the income and the remaining amount is the taxable income. For example, if you have earned $100 and donated $15 to charity, then $85 is your taxable income. A tax credit is very different from a tax deduction. A tax credit is a reduction in the final tax amount owed. Tax credits include things such as earned income credit, child tax credit, and lifetime learning credit. So, if you have earned $100 and you receive a $15 tax credit, your tax due goes from $25 to $10. Tax credits are the best opportunity between the two

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