Business Glossary

government levy on the net earnings of an individual, corporation, or other taxable unit. The tax rate is usually a graduated one as earnings go from one tax bracket to another. Tax rates for individuals also depend on the status of the taxpayer (e.g., single, married). Income tax may include an addition to the regular tax such as a surtax. The maximum corporate tax rate is 35%. The income tax provision is shown as an expense in the income statement.

annual tax on income levied by the federal government and by certain state and local governments. There are two basic types: the personal income tax, levied on incomes of households and unincorporated businesses, and the corporate (or corporation) income tax, levied on net earnings of corporations.

Under present tax law, there are six tax brackets for individual taxpayers: 10%, 15%, 25%, 28%, 33%, and 35%. The level of taxable income for each bracket differs according to filing status (such as married filing jointly, singles, or heads of household) and is revised slightly every year. Long-term capital gain receive preferential tax treatment both for individuals and corporations. Assets held for more than 12 months are taxed at a top rate of 15%, versus a top rate of 35% for short-term gains on assets held for 12 months or less. Because capital gains rates reward taxpayers in a position to take risks, and because loophole and tax shelter enable the wealthiest corporations and individuals to escape the higher tax brackets, the progressiveness of the tax system has often been more theoretical than real. There have been many sweeping changes in the tax code, creating an enormous amount of complexity. In 1998, the internal revenue service restructuring and reform act of 1998 instituted numerous changes in the way the Internal Revenue Service conducts business, including shifting the burden of proof from taxpayers to the IRS in court disputes over the amount of taxes owed by a taxpayer. The progression of changes in the tax code is described in great detail in other Dictionary entries, including: Economic Growth and Tax Relief Reconciliation Act of 2001 ; Economic Recovery Tax Act of 1981 (ERTA) ; energy tax incentives act of 2005 ; internal revenue service restructuring and reform act of 1998 ; jobs and growth tax relief reconciliation act of 2003 ; revenue reconciliation act of 1993 ; military family tax relief act of 2003 ; Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) ; tax reform act of 1984 ; tax reform act of 1986 ; taxpayer relief act of 1997 ; and the working families tax relief act of 2004 .

tax based on income earned by a person or business. The income tax is the main source of revenue for the federal government and one of the main sources for many states.

See also ad valorem , progressive tax , sales tax , Value-Added Tax (VAT)