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Income taxes

Income tax is a progressive tax that is imposed by the federal government of the US on the various taxable incomes of the people, companies, organizations, trusts and so on. Income taxes are also imposed by some states and municipal governments. The money received from the tax is spent on a wide range of productive and developmental activities.

The income taxes in US are taken from various types of income sources. Income tax is taken in the form of compensation from personal services like salaries, wages, dividends from stock market, business profits, interest income from invested funds and so on. Tax is also imposed on capital gains which mainly take place on the sale of investment property.

In usual terms, for individuals or retirees, the Adjusted Gross Income (AGI) consists of the gross income which does not consist of any above-the-line deductions, moving expenses or alimony. The income after taxation is less the standard deductions that are applicable. The marginal tax income bracket of an individual depends on his or her income and the classification of tax-filing. There are six tax brackets for ordinary income and four classifications for single, qualified widow or widower, head of the household and so on.

Various states in the US also impose income taxes in addition to the federal income taxes. Some individual cities also levy income taxes in the form of compensation on the various incomes of individuals. For the purpose of federal taxation, some local and state taxes are also deductible. Through the method, the federal government subsidizes a portion of the state income tax of an individual. Some states like Puerto Rico and Guam do not pay any kind of federal income tax.

By having an idea of the income tax structure in the US helps retirees and older adults can make proper savings and lead a safe and secure post retirement period.