Federal and State Income Tax Information
Related Keywords: Income tax, Federal income tax, Income tax forms, State income tax
Income taxes are usually structured to be progressive taxes. Some critics believe this type of tax is a form of punishment for economic productivity. Others believe that income taxation is socially intrusive because large-scale enforcement requires the government to collect massive amounts of information about business and personal affairs, much of which people consider proprietary and confidential.The crucial invention permitting the reliable collection of income taxes was having the capacity to directly withhold taxes from payrolls by employers; this system works because most people in modern societies work on salaries. This reduces the "perceived" burden of the tax because employees never handle the money. Direct withholding also reduces cheating, because it requires the collaboration of the employer, and because there are fewer employers than employees, the government can enforce their rules more effectively. However, direct withholding has some drawbacks: it puts a part of the burden of tax processing on the employer, and it complicates matters when the employee should pay significantly less or more than what is expected from its salary (because of tax-deductible expenses or side revenues). However, direct withholding is the method of collection of choice in most countries that have an income tax, with the exception of France.
Income tax, in addition to income, also takes into account a variety of other factors. Certain expenses, including work-related expenses, donations to charities etc., can be tax deductions. Also, investments in some impoverished areas or industrial sectors are encouraged through tax breaks (reduced rates). Donations to charities may also be partly subtracted from the income tax. Because of certain exemptions, rebates etc., income tax codes are usually extremely complicated. In some countries such as the United States, individuals often hire the service of a tax accountant in order to find the best way to reduce their taxes.
Income tax fraud is a problem in all countries implementing an income tax. Either someone fails to declare income, or declares nonexistent expenses. Failure to declare one's income is especially easy for non-salaried workers, especially those paid in cash. Tax enforcement officials fight tax fraud using various methods, always with the help of computer databases. They may look for discrepancies between declared revenue and expenses throughout an extended period. Tax enforcement officials then target individuals for a tax audit.
