Confused about taxes? What is taxable income?
For the most part, the gross income an individual or business makes in a year is considered as taxable income. Deductions and exemptions are reduced from the gross income in order to determine a certain level of taxable income. Contributions such as those made towards 401(k) are not taxable. Social security payments are also not considered taxable.
The main factor that determines tax calculation is the type of income. According to golden tax lawyers income falls primarily into four categories, namely: salaries and wages, self-employment, income from interest, and income from dividend.
Salaries and Wages
Salaries and wages are major sources of taxes since the majority of people belong to the workforce (though there are some who choose to live off other tax payers because they are either selfish or believe they are entitled to something based on irrational reasons). Salaries and wages are taxed at normal tax rates and are subject to Medicare and social security taxes. If you are an employee, you are required to obtain Form W-2 from your employer at the beginning of the year. This contains information about withholdings for federal income tax and state income taxes.
It also indicates social security and Medicare taxes. For employees, withholdings include federal income tax of 7.65%, social security tax of 6.2%, and Medicare tax of 1.45%. Tax attorneys explain that the amount has to be matched by the employer. People who are self-employed have to pay both sides, they do not have anyone to match it which another aspect of this tax code that is unfair (more on this later).
If America wanted to see robust growth they would implement a flat tax which would simply the tax code and not favor one group of people over another. But thus far America chooses to keep things complicated.
In regards to the idea raised about not everyone choosing to work you saw this in the movie Million Dollar Baby. Earline Fitzgerald (Margo Martindale) chose not work because she was lazy. There is no other way to say it. She did not even want the home her daughter bought for her! This is how deplorable some Americans are. They are un-American since America was built on people who paid their own way.
If you need legal help in this department then you need to open up USAttorneys.com. This website has saved lives and it costs nothing to use!
Income from Self-Employment
Income from self-employment attracts the same income tax rates as wages or salaries. The only major difference is that this income is subject to self-employment tax instead of social security and Medicare taxes.
As a federal income tax of 7.65% is withheld in the case of salary and wages while the other 7.65% is shared by the employer, a self-employed person is required to pay 15.3%, the total of both (they do not have anyone to match it for them as mentioned above). Fantastic tax lawyers reiterate that all self-employed business owners are required to maintain records of income made during a financial year. Independent contractors work with Form 1099 for income over $600 with certain clients.
Interest accrued from your savings account also attracts the same income rates as those for salaries, wages, and self-employed income but are not subject to social security and Medicare taxes. Interest that is considered taxable income is reported on Form 1099-INT. Bonds issued by state governments or municipalities are considered as nontaxable interest income in the case of federal taxation. However, they may be subject to local or state income taxes.
Income from profits that are distributed to a corporation’s shareholders, known as dividends, is also subject to taxes. However, dividend income is not subject to social security or Medicare taxes. Usually, dividend income attracts lower tax rates than income tax on various types of income. Qualified dividends are those to which capital gains tax rates apply and qualify for a lower tax rate. Ordinary dividends do not qualify for lower tax rates and are subject to normal income tax rates.
It is amazing that dividends are taxed. This is because taxing someone’s investments is wrong according to many people. Americans are already taxed via their income so taxing them also for their investments is akin to double taxation which is a violation of constitutional law.
Meanwhile, if you need help with tax related issues of any type, make sure to seek help from a profound tax lawyer. Tax laws are complex and any mistake could raise a red flag with the IRS. You can avoid all that with a legal pro by your side.
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