Federal Income Tax

WEB EXTENSION

2A

The Federal Income Tax System for Individuals

WWW

H&R Block provides information for the current and next year at http://www .hrblock.com/taxes/tax_ calculators. A Web site explaining federal tax law is http://www.taxsites .com. From this home page one can visit other sites that provide summaries of recent tax legislation or current information on corporate and individual tax rates. The official government site is http://www .irs.gov.

resource

See Ch02 Tool Kit.xls for details.

Our tax laws can be changed by Congress, and in recent years changes have occurred frequently. Indeed, a major change has occurred, on average, every 3 to 4 years since 1913, when our federal income tax system began. Further, certain parts of our tax system are tied to the inflation rate, so changes occur automatically each year, depending on the rate of inflation during the previous year. Therefore, although this section will give you a good background on the basic nature of our tax system, you should consult current rate schedules and other data published by the Internal Revenue Service (available in some U.S. post offices and on the Web) before you file your personal or business tax returns. Currently (January 2009), federal income tax rates for individuals go up to 35%; when Social Security, Medicare, and state and city income taxes are included, the marginal tax rate on an individual’s income can easily exceed 50%. Business income is also taxed heavily. The income from partnerships and proprietorships is reported by the individual owners as personal income and, consequently, is taxed at federalplus-state rates going up to 50% or more. Corporate profits are subject to federal income tax rates of up to 39%, plus state income taxes. Furthermore, corporations pay taxes and then distribute after-tax income to their stockholders as dividends, which are also taxed (although at a lower rate than ordinary income, as explained below). So, corporate income is really...