The tax code is written by the Congress and this directs anything that is related to tax including collection of it, enforcement of rules as well as the issuance of tax refunds. This Internal Revenue Service (IRS) is the agency of the federal government that is tasked to carry out the said functions.
How Is Tax Code Interpreted?
The IRS regulations create meaning to the IRS tax codes. It provides guidance on the application of the tax law, revenue rulings as well as procedures. Now although the IRS offers its very own interpretation of the tax code, once there is a dispute, the one that interprets the tax code is the federal court system.
How Are Taxes Used?
The government of the United States Of America collects the income taxes, sales tax, real estate tax and payroll taxes from workers and companies. The federal government then disburses the money according to its budgetary needs as well as purpose. Taxes are used in national defense, social benefits, and national parks to name a few.
How Are Taxes Collected?
The government collects taxes and it gets it revenue from the income taxes. Collection is done throughout the year by means of withholding the paycheck of the taxpayer and, at the end of the year, the person gets a tax refund for paying too much tax or get contacted by IRS for paying too little.
Understanding What Taxable Incomes Are
There are two types of the taxable income that are subjected to taxes and these are the unearned and earned incomes. Earned incomes include the following:
– Generous tips
– Charged commissions
– Benefits for the unemployed
– Sick leave pay
– Fringe benefits
On the other hand, the unearned incomes that are subjected to tax include the following:
– Bank interests
– Dividends from stocks
– Earnings from the sale of asset like property
– Business income
– Tenant rent
– Winnings from gambling
– Spousal alimony
Thus, it is highly possible for you to reduce the taxable income by means of contributing to a retirement account such as the 401K or an IRA.
Understanding What Are The Allowed Deductions
The federal government usually allows the deduction of several types of expenses from a taxpayer’s adjusted gross income. A taxpayer can always exclude the income from taxation by using a standard deduction amount that is determined by the government as well as the taxpayer’s filing status or by itemizing the types of expenses that you have. These expenses include the mortgage interest, local taxes as well as medical expenses.