The income tax laws seem to be very complex on the face of it but on closer speculation, they are actually quite simple and logical. The gross income stands as the income received after deducting the exclusions like bonds exempt from bonds and health insurance paid by the employers, which is known as gross income. The laws state that no income tax needs to be paid on such exemptions. The final taxable income arrived at after all calculations, is multiplied by the appropriate tax rate.
The tax laws demarcate various kinds of taxable income. Ordinary income includes salaries, wages, income got from invested funds and profits made in business. Capital gains are made by selling investment property.
The rates of income tax are the same for ordinary income and short-term capital gains while the long term capital gains are taxed at a lower rate. In order to counter the tax payers manipulating the tax shelters to their own advantage, the income tax laws of America also makes a distinction between income from passive and non-passive activities.
The complexity of the income tax laws in the country is a result of the efforts of legislatures and leaders who try to use the laws to bring about greater social benefit. Various exemptions and tax rebates are given to the citizens in order to encourage them to buy life insurance, pension funds and employee health care policies and invest in policies dealing with conventional and non-conventional sources of energy.
The US income tax law allows individual states to impose income tax on their citizens and the cities within them to impose additional income tax.
Last Updated on : 5th July 2013