Tax Analysis

Tax Analysis Paper

Introduction

Tax is the amount charged or levied by the government on the activity by individual or by legal entity. Each country has developed income bracket which is formulated considering the inflation adjustments. The aim of this research is to explore the impact that an income bracket has on an individual's tax liability. The discussion would focus on the amount of tax paid by individuals as compared to other entities and income bracket system and efforts that have been made to modify the current system.

Discussion

U.S Income Tax System

United States levied tax on income through federal, states & local governments. The amount of income tax is influenced through the enforcing the rate that perhaps enhance or reduce the tax on the taxable income. Corporations and individuals are directly taxable to their income while trusts and estates might be taxed on the undistributed incomes. The rate of income tax is based on the inflation and other economic factors. US Personal Income Tax is bracket for taxes where individual has to pay tax amount in the year imposed by government of United States. Any person fail to pay this amount will be penalized with high fees, fine or jail. Addition to this, individual is also liable to pay other taxes such as tax on wages or additional profit earned which might be from medical care, social services and capital gains taxes (CCH Editors, 2011).

Current Income Brackets 2013

Internal Revenue Service has published the following income brackets for 2013 (Department of the Treasury Internal Revenue Service, 2013).

0.1

Up to $ 8,925

Up to $ 17,850

Up to $ 8,925

Up to $ 12,750

0.15

$ 8,926 -

$ 36,250

$ 17,851 -

$ 72,500

$ 8,926- $ 36,250

$ 12,751 -

$ 48,600

0.25

$ 36,251 -

$ 87,850

$ 72,501 -

$ 146,400

$ 36,251 - $ 73,200

$ 48,601 -

$ 125,450

0.28

$ 87,851 -

$ 183,250

$ 146,401 -

$ 223,050

$73,201 - $111,525

$ 125,451 -

$ 203,150

0.33

$ 183,251 -

$ 398,350

$ 223,051 -

$ 398,350

$111,526 - $199,175

$ 203,151 -

$ 398,350

0.35

$ 398,351 -

$ 400,000

$ 398,351 -

$ 450,000

$199,176 - $225,000

$ 398,351 -

$ 425,000

0.396

$ 400,001 or more

$ 450,001 or more

$ 225,001 or more

$ 425,001 or more

The above income bracket shows the tax rate for Single filers, married filing jointly or qualifying widow/widower, married filing separately and Head of household. Different percentage applied to these headers according to the income they are earning on yearly basis. This should be kept in mind that taxes listed above are marginal rates which means that the same rate cannot be applied all the time for the income. For instance, a single person earning $100,000 per year would not be liable to pay 28% on the entire income and would not be obligated to $28,000 to the federal government. Individual has to pay 10 percentage of dolarr 8,925 and 15 percentage of dollar $27,325, the difference between these two (top and threshold 2nd tax bracket), 25% of $51,600 and 28% of $12,150, the difference between these two (top and threshold 3rd tax ...