Income Tax Basics

Income Tax

Definition

• Income tax is a type of tax levied on an individual's or business's income or profits
• Also known as personal income tax

Types of Income Tax

• Progressive Tax: tax rate increases as income increases
• Proportional Tax: tax rate remains the same regardless of income level
• Regressive Tax: tax rate decreases as income increases

Income Tax Bases

• Gross Income: total income earned, including wages, salaries, and other income
• Taxable Income: gross income minus deductions and exemptions

Tax Rates

• Marginal Tax Rate: tax rate applied to the last dollar of income earned
• Effective Tax Rate: average tax rate paid on taxable income

Tax Filing

• Individuals: typically file tax returns on a calendar year basis
• Businesses: may file tax returns on a fiscal year basis

Income Tax Exemptions and Deductions

• Standard Deduction: fixed amount deducted from taxable income
• Itemized Deductions: specific expenses deducted from taxable income, such as mortgage interest and charitable donations
• Tax Credits: direct reductions in tax liability, such as child tax credits

Income Tax Around the World

• Developed Countries: high-income countries with complex tax systems, such as the US and UK
• Developing Countries: low-income countries with simpler tax systems, such as India and Brazil

Income Tax

Definition

• Income tax is a type of tax levied on an individual's or business's income or profits
• Also known as personal income tax

Types of Income Tax

• Progressive tax: tax rate increases as income increases
• Proportional tax: tax rate remains the same regardless of income level
• Regressive tax: tax rate decreases as income increases

Income Tax Bases

• Gross income: total income earned, including wages, salaries, and other income
• Taxable income: gross income minus deductions and exemptions

Tax Rates

• Marginal tax rate: tax rate applied to the last dollar of income earned
• Effective tax rate: average tax rate paid on taxable income

Tax Filing

• Individuals: typically file tax returns on a calendar year basis
• Businesses: may file tax returns on a fiscal year basis

Income Tax Exemptions and Deductions

• Standard deduction: fixed amount deducted from taxable income
• Itemized deductions: specific expenses deducted from taxable income, including mortgage interest and charitable donations
• Tax credits: direct reductions in tax liability, including child tax credits

Income Tax Around the World

• Developed countries: high-income countries with complex tax systems, including the US and UK
• Developing countries: low-income countries with simpler tax systems, including India and Brazil