In the United States, all taxes are collected by the Internal Revenue Service (IRS). On the IRS website, every US citizen can independently fill out a declaration or use the services of a tax consultant. The cost of his services can vary from $70 to $300. Most Americans resort to the help of tax agencies since it is quite difficult to figure out the nuances of taxation on your own.
1. Key facts about US federal income tax
In the US, there is no single tax on personal income. The United States has a progressive taxation system: the tax rate rises following an increase in income. Federal income tax is paid by all citizens working in companies and corporations, as well as holders of a residence permit (Green Card) and residents of the United States. Another significant difference: income received both in the United States and outside of it is taxed. This applies to Green Card holders and citizens, regardless of their time in the United States.
The income tax rate varies from 10% to 37% depending on income. A prerequisite for US residents is the annual filing of the declaration by April 15th. The penalty for late submission of the declaration is 5% of the amount of tax to be paid for each month of delay, but not more than 25%. You can file a general declaration for the whole family or declare the income of each spouse separately.
2. Tax deductions
Tax deductions help to significantly reduce the tax burden in the United States – this is the amount by which the tax base is reduced. However, there are standard deductions for spouses and singles, as well as a wide variety of additional deductions for education, transportation, housing, and more. You can figure out on your own what deductions can be applied, and how and when, but be prepared to spend a lot of time and effort on this. That is why the services of tax consultants are so popular.
Since December 2020, some tax deductions have increased. For example, the standard deduction applicable to married couples is now up to $24,000 instead of the previous $12,700; the individual deduction is now $12,000 instead of $6,350.
3. Local taxes vary by city and state
Unlike the federal fee, local and state tax percentages will vary from region to region as they are set at the local and state level. For example, there is no local tax for residents of Texas, while residents in New York City need to deduct 8.8% from their wages.
4. Sales tax is not included in the price of the item
Trading taxes are an important part of the US taxation system. Unlike VAT and excises in other countries, prices in US stores are excluding tax, which averages 7%-12%. With each purchase at the checkout, you will pay a percentage that is set in the state. However, essential goods, such as prescription drugs, are exempt from the tax.
5. Real estate tax is paid annually
This fee must be paid annually by all owners of immovable property (houses, land). The interest rate is determined at the local and regional level and averages 1-2% of the value of the property.
6. Tax optimization
The US tax system is very voluminous, and with the right structuring of assets, you can significantly reduce your tax payments.
Legal entities and individuals are interested in reducing the amount of taxes paid, and this is why there are tax specialists who help legal ways to reduce the tax burden. Tax consulting is very common in the US, and most Americans trust the management of their finances to qualified tax professionals.
7. Important in the US taxation system for legal entities
A law on tax reform has been signed that now for legal entities (companies and corporations) the income tax has been reduced from 35% to 21%. In addition, funds raised by an American company abroad are now subject to a reduced rate of 8% and 15.5% (for cash and non-cash funds, respectively) when they enter the United States. Before the reform, the rate was 35%. Also, tax deductions were introduced for legal entities.
This will have a positive impact on doing business in the US and encourage investment in US companies.
Read more: https://taxtaxation.com/business-taxes-in-canada/
