A Comprehensive Guide to US Taxes.

Understanding the U.S. tax system can be complex, but it's essential for individuals and businesses to comply with federal, state, and local tax laws. This guide provides a comprehensive overview of U.S. taxes, including types of taxes, filing requirements, deductions, credits, and penalties.

Types of Taxes

1. Federal Income Tax:

  • Individual Income Tax: Levied on the income of individuals, including wages, salaries, and other forms of income. The tax rates are progressive, meaning higher income levels are taxed at higher rates.
  • Corporate Income Tax: Levied on the income of corporations. The Tax Cuts and Jobs Act (TCJA) of 2017 set the corporate tax rate at a flat 21%

2. State and Local Taxes:

  • State Income Tax: Most states impose an income tax on individuals and businesses. The rates and structures vary by state.
  • Sales Tax: Levied on the sale of goods and services. The rate varies by state and locality.
  • Property Tax: Levied on real estate and sometimes personal property. The rate is determined by local governments.

2. Payroll Taxes:

  • Social Security Tax: Funds the Social Security program. Employers and employees each pay 6.2% on wages up to a certain limit.
  • Medicare Tax: Funds the Medicare program. Employers and employees each pay 1.45% on all wages. An additional 0.9% Medicare tax applies to high-income earners

2. Self-Employment Tax:

  • Self-employed individuals pay both the employer and employee portions of Social Security and Medicare taxes, totaling 15.3%

2. Excise Taxes:

  • Levied on specific goods and services, such as gasoline, alcohol, and tobacco. These taxes are often included in the price of the product

2. Estate and Gift Taxes:

  • Estate Tax: Levied on the transfer of the estate of a deceased person. The federal estate tax applies to estates exceeding a certain threshold.
  • Gift Tax: Levied on the transfer of money or property to another person without receiving something of equal value in return. The federal gift tax applies to gifts exceeding a certain annual exclusion amount

Filing Requirements

1. Who Needs to File:

  • Most U.S. citizens and residents who earn income above a certain threshold must file a federal income tax return. The threshold varies based on filing status, age, and type of income

2. Tax Forms:

  • Form 1040: The standard federal income tax form for individuals.
  • Form 1120: The federal income tax form for corporations.
  • Form 1065: The federal income tax form for partnerships.
  • Form 1120-S: The federal income tax form for S corporations

2. Filing Deadlines:

  • Individual Tax Returns: Typically due on April 15th. If this date falls on a weekend or holiday, the deadline is the next business day.
  • Corporate Tax Returns: Typically due on March 15th for calendar year corporations. Extensions are available

2. Extensions:

  • Taxpayers can request an extension to file their tax return by submitting Form 4868 for individuals or Form 7004 for businesses. However, this does not extend the time to pay any taxes owed

Deductions and Credits

1. Standard Deduction:

  • A fixed dollar amount that reduces the income on which you are taxed. The amount varies based on filing status and is adjusted annually for inflation

2. Itemized Deductions:

  • Taxpayers can choose to itemize deductions instead of taking the standard deduction. Common itemized deductions include medical expenses, state and local taxes, mortgage interest, and charitable contributions

2. Tax Credits:

  • Earned Income Tax Credit (EITC): A refundable credit for low to moderate-income workers.
  • Child Tax Credit: A credit for taxpayers with qualifying children. The TCJA increased the credit amount and made it partially refundable.
  • Education Credits: The American Opportunity Credit and Lifetime Learning Credit help offset the cost of higher education

Penalties for Non-Compliance

1. Failure to File Penalty:

  • If you do not file your tax return by the due date, including extensions, you may be penalized 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax
  • If the return is more than 60 days late, the minimum penalty is the lesser of $435 or 100% of the unpaid tax

2. Failure to Pay Penalty:

  • If you do not pay the tax owed by the due date, you may be penalized 0.5% of the unpaid tax for each month or part of a month the tax is not paid, up to a maximum of 25% of the unpaid tax

2. Accuracy-Related Penalty:

  • If you underreport your income or overstate your deductions, you may be subject to a penalty of 20% of the underpayment

2. Fraud Penalty:

  • If you file a fraudulent tax return, you may be subject to a penalty of 75% of the underpayment due to fraud

2. Interest on Penalties:

  • Interest accrues on any unpaid tax from the due date of the return until the date of payment. Interest also accrues on penalties

Common Tax Forms and Schedules

  1. Form 1040: U.S. Individual Income Tax Return.
  2. Schedule A: Itemized Deductions.
  3. Schedule B: Interest and Ordinary Dividends.
  4. Schedule C: Profit or Loss from Business (Sole Proprietorship).
  5. Schedule D: Capital Gains and Losses.
  6. Schedule E: Supplemental Income and Loss.
  7. Schedule F: Profit or Loss from Farming.
  8. Schedule SE: Self-Employment Tax