Income Tax – Why Do We Pay Federal Income Tax
Income Tax Return
Although there are many different types of taxes– sales tax, payroll tax, property tax, etc.– most people are referring to income tax when they use the broad term “taxes”. This is likely because income taxes are the federal government’s primary source of revenue “Income”, as defined by the IRS, can take on many forms such as salaries, rents, royalties, interest dividends, business earnings, unemployment compensation and even lottery winnings.
Why do you pay a federal income tax?
Paying federal and state taxes is a stipulation expressed in the 16th Amendment to the Constitution, but why is this civic duty so important? According to the Congressional Budget Office (CBO), income taxes made up $1.1 trillion of the $2.3 trillion received by the government in 2011– nearly half of the budget.
Social insurance (payroll) taxes made up $819 billion, followed by corporate taxes at $181 billion, and other (federal reserve earnings, excise taxes, etc.) with $212 billion. Without income taxes, the financial foundation of the country would collapse.
Who pays income tax?
Everyone that received any income must pay taxes. This includes income from a small business, salaries, stocks or capital gains, and gambling income. Research from the Tax Foundation further illustrates that government taxing and spending policies redistribute more than $2 trillion from the top 40 percent of families to the bottom 60 percent.
Although income taxes serve an important social and economic purpose, you want to make sure you’re only paying the portion you truly owe. Taking advantage of formal income tax preparation is essential for achieving this goal. Our trained tax professionals at H&R Block and our free online tax filing services can help you get there.
Would winning the lottery affect your taxes? Learn more about how your taxes could change after a Powerball payout with H&R Block.
Learn more about the definition of cash in lieu on your 1099-B and get tax answers at H&R Block.
Are stock dividends taxable? Learn more about stock dividends and get tax answers at H&R Block.
Learn more about reporting LLC losses with advice from the tax experts at H&R Block.