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Taxation Issues

Taxation Issues – an Introduction

The taxation in United States is one of the most complex processes in the world. As there are several levels of government and different methods if taxation, there also exists a number of taxation issues. In order to calculate your tax due amount properly and most importantly, also to know how you can save your tax, it is always better to learn those taxation issues.

The Structure of US Taxation

There are basically three factors that determine your tax amount. Those can be described as (i) Status of the taxpayer – whether he/she is a US resident or a non-resident (ii) Source of income and (iii) whether or not connected to US trade or business.

The US citizens (including the residents who have green cards) are taxed on the basis of their worldwide income. However, you may opt for exclusion of annual foreign earned income up to a certain limit fixed by the government every year, from their taxable income. To reduce double tax, you may opt for taking a foreign tax credit or foreign tax deduction on taxes paid to foreign government.

Various Taxation Issues

There can be several taxation issues that one may find in United States, but the most talked-about is perhaps the scheduled expiration of enacted tax cuts.

Scheduled Expiration of Enacted Tax Cuts:

The Economic Growth and tax Relief Reconciliation Act (EGTRRA) of 2001, which provided a substantial tax cut, is going to expire at the end of 2010. Some of the most prominent provisions that EGTRRA provided can be stated as – (i) reduction in statutory individual income tax rates (ii) creation of a new 10% tax bracket (iii) increase in the per-child tax credit (iv) tax cuts for married couples (v) repeal of estate tax (vi) tax cuts under the individual alternative minimum tax.

Alternative Minimum Tax for Individuals:

Another important taxation issue is the Alternative Minimum Tax for Individuals (AMT). With every passing year, more individuals are expected to be subject to the AMT rather than the regular tax. AMT functions like a parallel income tax that has lower rates and fewer deductions, exemptions, credits, and special tax preferences.