Money Wise
The Use of a Tax Rate in Income Taxation
It is worth noting that personal earnings for example, wages and also business income altogether constitute the income tax. Without the income from either individuals or businesses corporate, then we should not be talking of the income tax, but another type of tax. A tax rate is a percentage proportion that is used to tax different earnings of either individuals or businesses corporate. The tax rate is designed in such a way that if takes care of the citizens of a country since all people do not earn the same.
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The policy here is that people with high incomes should have a higher tax rate as compared to those who earn low. This policy is almost standard in every country since it does not sound logic to levy similar income tax to all individuals and yet we have in mind that there are those individuals who earn less than a dollar per day. These individuals should be treated with utmost care since they are citizens like any other the only difference is that they are below the poverty line.
Income Levels that Require Income Taxation
Tax rates differ depending on the levels of income and it is actually good to know that some incomes are not taxed at all. This is because the government of a country can consider taxing people below poverty line as a kind of exploitation and set them free from income taxation. Bearing in mind that when it comes to government spending, these individuals who have low incomes and they were not taxed will still enjoy the public benefits, the government tries to compensate by increasing the tax rate for the highly paid individuals so that it balances the calculations of its public expenditure. This needs professionals who are well trained to do this work otherwise the government body concerned with taxation will find itself in a position of not being able to plan funds well to be used in public expenditure.
Income Taxation on Capital Gains
It is true to note that apart from the individual’s pure income and also businesses corporate earnings, capital gains are also taxed especially when they appreciate. For example, is the value of shares appreciate, you find that the government wants to levy a particular tax on the same so that it gains something for public expenditure. For every appreciation of either shares or dividends, government imposes a tax which is proportional to the rate of appreciation so as to cater for expenses and also take care of the citizens.
Progressive and Regressive Income Taxes
The tax rates can be progressive whereby the tax rates increase with the increase in the level of income, for example, if initially an individual’s income was $5000 with a tax rate of 5%, then the tax rate is likely to increase with the increase in the income. We have also regressive income tax whereby taxation applies up to a certain amount for example; taxation can be for the first $50000 earned. It is worth to note that the tax system uses different taxation methods for different types of income.
