Every country has its unique taxation system that applies to all citizens and business entities of that country. The United States is no exception. This country has a separate taxation system for individuals and business entities. Individuals account for their taxes on the IRS form 1040. US residents pay huge taxes, sometimes up to forty percent of their income. Such an enormous tax burden allows the United States to prosper economically. The American taxation system is extremely complicated, and it takes years to learn the basic rules of individual tax preparation.
Taxation of World-Wide Sources of Income
The United States taxes its residents on Worldwide Income. For example, if a person worked and lived for three months in France, he or she will have to pay taxes on their foreign income. However, US residents are allowed to deduct their foreign taxes on their American tax returns. There is one exception. Sometimes the US allows excluding foreign income from American tax returns as long as the US citizen meets a particular residency test. As I’ve mentioned before, American tax preparation theory is very complicated, and taxation of the Worldwide Income is a good example.
Different incomes and tax rates.
The Internal Revenue Service is a government agency in charge of different tax regulations and rates. For example, in 2021, the highest individual tax rate is 37%. The IRS takes into consideration the financial situation of a taxpayer and assigns to him/her tax rates depending on their level of income. It is a very innovative taxation method since most of the countries use a flat taxation system where rich and poor are in the same tax bracket. American single taxpayers get fewer deductions, as opposed to married taxpayers. Head of the household taxpayers (those are single people with children) are somewhere in the middle and get pretty hefty deductions on their tax returns. There are also different tax rates depending on the type of income. For example, long-term capital gains are taxed less than wages income. Rental and investment incomes are also taxed differently. As you can see, tax preparation varies from individual to individual.
What About Tax Returns?
American citizens file their forms 1040 every fiscal year. The deadline for tax filing is April, 15th. An individual can extend the deadline by six months, and this time should be enough for him/her to gather missing information. The form 1040 contains all the information, such as name, address, place of work, social security number, and so on. Sometimes people get tax refunds, and sometimes they are required to pay extra tax. All of it depends on the taxpayer’s marital status, deductions, tax rates, and how much tax he or she paid during the year.
Who can help with income tax preparation?
This is just a fraction of tax-related rules that the American resident is required to abide by. And of course, the most tough cases require professional expertise. The most experienced tax professionals are CPAs, or so-called Certified Public Accountants. CPAs go through rigorous training and schooling and are very respected within the community. Only CPAs can deal take up difficult tax preparation cases and ensure that individual tax returns are correct and error free.
