Finance
An income tax is a tax levied on the financial income of persons, corporations, or other legal entities. Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate tax, corporate income tax, or profit tax.
When you get your paycheck at the end of the first pay period at a new job, it’s always interesting to see your net pay. Most of us expect more than we get. By the time you get your check, it has been cut up like a pizza, with several entities taking a piece of the pie. The entities that take money differ from person to person, company to company and state to state. However, almost every income earner has to pay federal income tax.
For tax purposes, income can be divided in a variety of ways. The first division is between ordinary income and capital gains. Ordinary income includes compensation for personal services such as wages and salaries, business profit, dividends from stock shares, and interest income from invested funds while capital gain generally comes from the sale of investment property. Congress has typically shown a preference for long-term investment by having a capital gains tax rate lower than the ordinary income rate. However, only long-term capital gains get preferential treatment; short-term capital gains (from property held for one year or less) are taxed at the same rate as ordinary income. Added complications come from various distinctions within each category.
