Federal taxes
Federal Taxes form the bulk of the taxes collected by the U.S. government. The tax is also called as a progressive tax because it increases with an increase in income. One distinctive feature of the federal tax in USA is that they use citizenship in addition to residential features while taxing an individual. That means all US citizens are subject to income tax irrespective of whether they live in the country or not. Most of the other countries do not charge income tax to their citizens who are not resident with them.
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The most mystifying areas of the economy are the role of the Federal government. It is the caretaker of the entire economy. In USA the central bank is the bank of banks and the bank of the US government. The Federal Bank regulates the financial institutions, manages the nation's money and influences the economy of the country. The Federal bank raises and lowers the interest rates to accelerate or slow down the economy as required.
Common Federal Taxes that apply to Business
There are four types of federal taxes that apply to business namely Income Tax, Self-Employment Tax, Employment Tax and Excise Tax. Every businessman has to file an annual income tax return depending on the nature and size of the business. A sole proprietor makes a detailed record of his income or loss on schedule C and attaches it to the individual IRS form 1040 where the profit or loss arising out of the business transactions is recorded. In a partnership firm an IRS form 1065 showing net profit or loss is shown without paying tax. The net figure is divided among the partners and reported on Schedule K-1 which is then carried forward on their individual 1040 tax return forms. A corporation is treated as a single unit and fills the IRS form 1120 or 1120A and pays the tax due. Individuals in the corporation receive salaries or dividends which are recorded on IRS form 1040. If the corporation makes a special election to be taxed under Sub-Chapter S of the Internal Revenue Code the corporation does not have to pay income tax as the income is distributed among the shareholders. Here IRS form 1120S has to be used.
The Self Employment taxes depend on net earnings of the individual. There are several employment taxes to be paid for more than two employees such as federal income tax, social security tax and federal unemployment tax. IRS Publication 510 includes various excise taxes on certain business activities like manufacture and selling of alcoholic beverages, firearms and tobacco. There are also federal taxes imposed on the use of highways by certain trucks, tractors and buses.
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