Tax return: What is it?

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istockphoto 1266907705 170667a
istockphoto 1266907705 170667a

Why do people pay taxes?

You know, the federal, state, and local taxes you have to shell out every year. 

Well, the simple answer is because they are required by law by your government. Of course there are more complex reasons that go into it, but that is another story for another time. 

The most important thing to note about taxes is that they are paid into a national fund which can be used for many things including funding government agencies for their work.

So, if i win the election “i will gladly show my tax returns”

The simplest way to look at this is with an analogy of a group of friends who pool their money together to build an awesome project, they would not want each one of them spending their own money on what they want separately because it’s too expensive. 

A group of friends would figure out how to assign costs to each person so they can maximize the quality at the least cost. Perhaps one friend wants to buy a new car, while another friend has a laptop computer for college, and the 3rd friend has medical bills.

Here are some more points about tax return-

1. The United States Tax Code

By simply following the rules and regulations you will not set yourself up for major tax trouble. Make sure you keep meticulous records of all your expenditures and investments, and if you need to take legal action, contact an experienced IRS professional. 

I myself do not have a federal tax return, but if I did it would be simple to file because all the filing information is available online. 

Because I’m not required to file taxes I can just estimate my taxes by using my income plus taxes for each state that I live in plus 1% of all income over $38,000 which is the dollar amount for which they require minimum returns (private individuals).

2. The Federal Income Tax

Under this system each taxpayer is obligated to file an annual income tax return with the IRS. 

The filing requirement is established by this section of the tax code, Title 26 U.S. Code § 6012(a)(1) which states that every person who makes a specified amount of money (adjusted annually for inflation) must file an income tax report.

The only way that you can completely avoid paying taxes is to move elsewhere, like Somalia or Russia where taxes are not required. 

However if you want to remain in the United States and make money, you will need to pay taxes or face fines and jail terms for tax evasion (which can carry up to 5 years in prison).

3. The State Tax Returns

Every state has its own income tax code that must be followed in order to avoid paying taxes in that particular state. 

For example, in New York, if you live there for more than 6 months of the year, you are required to report your income and pay taxes on it. So if you move to New York for 6 months, then any money received when living there is taxable. 

Some states like California or Florida do not require income tax returns when calculating your total taxable income (gross income). 

These states either have no state income tax or use a flat rate based on “personable earning” which is pretty much the same thing as an actual personal federal tax return. Some states like North Carolina require both federal and state income tax returns.

4. The Self Employment Tax

This is one of the more complicated taxes that you will need to worry about depending on how many businesses you operate or if you earned any income from self-employment (work done on your own). 

If you are self-employed, it is important to make sure that all your business earnings are reported on both your personal and business tax returns.

This information is required for each business activity that you do, so if you work for 2 different companies, then report that income twice. 

This type of tax applies to all levels of income including $400 per year if both husband and wife work independently.

5. The Gift Tax

This is not a tax that you will have to worry about because it only applies to very high net worth individuals who are giving away more than $14,000 in one year. 

The basic idea behind the gift tax is that you are not allowed to give more than $14,000 in one year. If you do then you’ll have to declare that income on your own income tax return the following year. 

With all these taxes it’s easy to see why it is more of a hassle than its worth to not pay your whole tax bill on time.

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