How Do Taxes Work?

How do taxes work? Well, if you’re paying them, the question surely pops into your head from time to time. The truth is taxes (as hard as it is to believe sometimes) do play a big role in the day to day of the United States.

Most everything you see out there was fully or partially funded by your federal taxes, which is why the IRS plays hardball when it comes to collecting them. But how do income taxes work?

Omnipresent as they are in the lives of almost every American, taxes are still very much misunderstood, and many myths surround them to this day. In this guide, we’ll attempt to explain what taxes are and how they work, and hopefully dispel a few of those myths along the way.

How Do Taxes Work and How Do They Affect You?

Para la mayoría de la gente, la idea de pagar impuestos sobre los ingresos les revuelve el estómago. Aunque todo el mundo sabe que los impuestos sobre la renta se pagan al IRS (Servicio de Impuestos Internos) cada año, el proceso de tributación en sí puede ser confuso para muchos. Hay varios factores que afectan al modo en que se gravan los ingresos personales, así como a la cantidad que se acaba pagando al gobierno o recibiendo como devolución. reembolso de impuestos.

El gobierno de Estados Unidos necesita mucho dinero para funcionar y financiar sus numerosos programas nacionales y extranjeros. Los estadounidenses son cada vez más conscientes de cómo se gasta el dinero de sus impuestos, pero muchos siguen sintiéndose intimidados por las complejidades del proceso fiscal. En pocas palabras, las personas deben declarar sus ingresos anuales y pagar los impuestos correspondientes.

Both individuals and companies are required to remit a portion of their income to the federal government on an annual basis. If/when politicians decide that they want more money for certain programs, they often raise income taxes to pay for them.

Here’s a short list of the different things funded by federal income taxes:

• First and foremost, for building, repairing, and maintaining infrastructure.
• Funding our multiple defense and national security programs.
• Providing safety net programs for lower-income citizens, as well as emergency disaster relief.
• Education, health, agriculture, cultural, public transport, and many other programs and grants are funded directly by federal taxes.
• Subsidies to the health sector is also funded by taxes.
• Social security programs, as well as pensions and benefits for government workers.

While legislators construct and implement tax laws, the IRS is the federal agency in charge of enforcing those tax laws and collecting the taxes.

The IRS also provides assistance to taxpayers who have questions, concerns, or issues with their tax situation. Due to advancements in technology, many preparación profesional de impuestos y los servicios de archivo ya están disponibles en línea.

Payment methods have also come a long way since the times of standing in line outside the post office with a fat wad of cash under your arm (or carrying a check with a bunch of zeroes).

From Direct Pay to electronic wallets and direct bank deposit, and even retail partners, the IRS has made tax payment as accessible as possible for every taxpayer (provided their tax return is filed correctly).

Tramos y tipos impositivos del impuesto federal sobre la renta

The amount of income tax that you owe each year is based on your income level. The United States currently uses a progressive income tax system — which means that the more money you earn, the more taxes you have to pay.

Fortunately, there are ways you can reduce your income tax liability by using various créditos fiscales, deducciones fiscalesy otras exenciones fiscales.

La mayoría de las personas están sujetas al sistema "Pay-As-You-Go", lo que significa que su impuesto sobre la renta se deduce de cada cheque de pago y se envía al IRS. Esto también se conoce como retención a cuenta.

Si usted está autónomo, the IRS expects you to pay income tax on a quarterly basis (typically in equal installments every three months) via pagos de impuestos estimados; this is because standard withholding like regular employees have is not an option for self-employed taxpayers (even if they also work a regular job on top of their self-employment).

A final de año, si sus pagos no han sido suficientes para cubrir el total del impuesto sobre la renta adeudado, deberá pagar el resto a Hacienda antes del 15 de abril. Por el contrario, si ha pagado demasiado a lo largo del año (es decir, más de lo que debe en concepto de IRPF), Hacienda le devolverá el exceso de pago en forma de un reembolso de impuestos.

Marginal Tax Rates

Su tramo impositivo marginal is the highest tax rate that you will pay on your income. For the 2024 tax year, there are currently seven income tax brackets for each federal filing status: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The amount of tax you owe depends on your income level and filing status.

The marginal tax bracket system is a gradual tax schedule, which basically translates to this: as you make more money, you pay more tax.

The amount of ingresos sujetos a impuestos que gana determina en qué tramo o tramos impositivos se encuentra. Aunque el objetivo de muchos contribuyentes es mantener sus ingresos en el tramo impositivo más bajo, recuerde que el calendario fiscal gradual garantiza que no todos sus ingresos tributen a un tipo más alto.

Por ejemplo, si pasa del tramo impositivo 22% al 24%, puede pensar que todos sus ingresos tributan a ese tipo más alto. Sin embargo, sólo el dinero que gana dentro del tramo 24% tributa a ese tipo.

Federal Income Tax Returns: How Do Income Taxes Work?

Most U.S. citizens will need to file a declaración federal de la renta every year and determine how much they owe in federal income tax. While the majority of people are required to file and pay income taxes, there are certain low-income earners (as well as children) who are exempt.

You will most likely have to presente una declaración de impuestos sobre los ingresospero debe comprobar los requisitos de presentación del IRS antes de proceder.

La mayoría de la gente puede simplemente revisar sus W-2 (Declaraciones de Salarios e Impuestos) para determinar sus ingresos anuales, aunque esto puede complicarse un poco si ha trabajado en más de un empleo durante el año.

For people who have different forms of earned income, they will have to report and back up all of them. The following are just some of the most common forms of earned income (but trust us on this, there are many more):

• All forms of wages from both salary and hourly pay.
• Pensions and retirement benefits.
• Fringe benefits such as sick pay.
• All self-employment income (which also requires you to pay quarterly income estimates).
• Unemployment benefits.
• Dividends from investments.
• All manners of business operations income.

Are Taxes Still As Complicated As Ever?

In June 2018, the IRS announced it was taking steps to streamline and simplify the income tax return process. This overhaul was part of the Tax Cuts and Jobs Act (TCJA), which was signed into law by President Trump on December 22, 2017.

Some tax return forms, including Form 1040A and Form 1040EZ, have been eliminated altogether starting with tax year 2019. The old Form 1040 (a.k.a. “the long form”) was replaced by a condensed, postcard-sized version that all taxpayers will use – with additional schedules/forms to attach if needed.

The simplified Form 1040 consolidates the three older versions of the 1040 return (Forms 1040, 1040A, and 1040EZ) into one form. The new 1040 form is basically two half-pages.

The first page is where you provide your personal information – such as your name, Social Security Number (SSN), address, dependents, and signature. The second page is where you report your income, tax deductions, tax credits, and reembolso de impuestos información.

Impuestos estatales sobre la renta

Impuestos estatales sobre los ingresos are separate from the federal tax laws enforced by the IRS. State taxes are levied by each individual state government – there is no system that encompasses the separate taxes for all 50 states.

For this reason, state taxes will vary (sometimes greatly) based on where you live, shop, invest, work, and conduct business. State taxes may be administered by a department of revenue, department of taxation, state treasurer, or state comptroller.

Understanding Income Tax: FAQ

1. What are income taxes?

In a nutshell, income taxes are levies or charges that the federal government imposes on individuals and businesses based on their yearly income. These charges are calculated using the “taxable income” of taxpayers, which is their total gross income after subtracting a series of deductions and exemptions.

2. What’s the difference between gross income and taxable income?

Your gross income is the total amount of money you earn in a given tax year. This income is made up of all your revenue sources, such as salaries, wages, interest paid to you, dividends from investments, tips, and many more. After subtracting all applicable deductions and exemptions from your gross income, you’re left with your taxable income. It is the taxable income and not the gross income from which taxes are calculated and then taken.

3. How is income tax calculated?

The IRS (Internal Revenue Service), the arm of the federal government in charge of tax collection, applies different tax rates to your taxable income after dividing it into portions called “tax brackets”. Each tax bracket has a corresponding tax rate, and only the part of your income that falls into each bracket is taxed using the corresponding rate.

4. How do tax brackets work?

The IRS uses brackets to divide your taxable income into ranges, and each range is tied to a specific tax rate. Let’s say your taxable income for the year is $10,000, and the first three tax brackets are 5%, 10%, and 15%. Now imagine that the income range for each bracket is a clean $4,000;  this means that your first $4,000 would be taxed at 5%, your next $4,000 at 10%, and your remaining $2,000 (which is the only amount that reaches the third bracket) is taxed at 15%. Therefore, even if you reach a higher tax bracket, only a fragment of your overall taxable income uses that bracket’s tax rate.

5. What is the difference between tax deductions and tax credits?

A deduction will reduce your taxable income, meaning that the amount of income that will be subject to taxes is lower; for example, a $1,000 deduction on a $10,000 taxable income means that, instead of $10,000 being taxed at 15%, now only $9,000 will be taxed at 15%. On the other hand, tax credits directly reduces your tax liability (that’s the amount of money you owe), dollar for dollar; getting a $1,000 credit means you have to pay $1,000 less in taxes.

6. Does being married mean I pay less taxes?

In essence, yes. That’s because your filing status determines a few factors such as your tax brackets, the amount of your standard deduction should you choose it, and your eligibility for certain credits. Married people get a better deal on taxes overall if both spouses choose to file a single tax return, but it’s not the only way to significantly reduce your taxable income.

7.  Do self-employed people pay employee or business taxes?

Self-employed people pay self-employment taxes. This is a special category that includes things such as Social Security and Medicare contributions on top of their income tax. However, they are also subject to quarterly tax payments on their estimated income since they don’t have the option of withholding their own wages like a boss does for regular employees.

Jacob Dayan

Entrepreneur • SEO Community Tax, LLC

Jacob Dayan is the CEO and co-founder of Community Tax LLC, a leading tax resolution company known for its exceptional customer service and industry recognition. With a Bachelor’s degree in Business Administration from the University of Michigan’s Ross School of Business, Jacob began his career as a financial analyst and trader at Bear Stearns and Millennium Partners before transitioning to entrepreneurship. Since 2010, he has led Community Tax, assembling a team of skilled attorneys, CPAs, and enrolled agents to assist individuals and businesses with tax resolution, preparation, bookkeeping, and accounting. A licensed attorney in Illinois and Magna Cum Laude graduate of Mitchell Hamline School of Law, Jacob is dedicated to helping clients navigate complex financial and legal challenges.

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