In this post, we will discuss the importance of understanding taxes, with a specific focus on corporate taxes. We will explore common misconceptions about who pays more and what to expect from returns and credits. Additionally, we will examine the function of deductions and how to take advantage of them. By staying informed about any changes to tax laws and regulations and seeking guidance fr
om a tax professional if necessary, corporations can confidently navigate the tax filing process and maximize the benefits of such.
Is it safe to say that the tax revenue of the United States benefits from the contribution made by corporations?
In the past, corporations used to pay a bigger portion of the government's income. But over time this has changed. In recent years corporations have been contributing a smaller portion of the government's tax revenues. According to the IRS historical data, the percentage has drastically decreased overtime. In 1952, corporations paid over 30% of the government's income, but in 2013 they only paid around 10%.
Return versus refund
When it comes to taxes, "return" and "refund" may sound similar, but they have different meanings. Your tax return is the collection of forms or questions you fill out to report your finances for the previous year to the IRS. Once your return is c
ompleted and sent to the IRS, your taxes are considered "filed." Your refund, on the other hand, is the money that the IRS returns to you if you paid more in taxes during the year than you actually owed. Think of it as getting change back when you overpaid at a store. Just remember: your return is like a financial report you file with the IRS, while your refund is the money you receive for overpaying on your taxes.
Credit versus deduction
Credits and deductions are two ways to lower your tax bill, but they work in different ways.
Credits directly reduce the amount you owe in taxes. For example, if you owe $1,000 in taxes and have a $200 credit, you now only owe $800. Refundable credits (e.g. the Earned Income Credit or Child Tax Credit) are even better because you can still claim them for a bigger refund, even if you don't owe any taxes.
Deductions, on the other hand, reduce your taxable income. For instance, if you earned $15,000 and have a $200 deduction, you'll only be taxed on $14,800 of your income. Examples of deductions include charitable giving, mortgage interest, IRA contributions, state taxes, and medical expenses.
Credits generally offer more tax savings than deductions. While a $500 credit will reduce your tax bill more than a $500 deduction, both can significantly lower your tax bill.
Are the high corporate income taxes in the US causing corporations to relocate to other countries?
You may be aware of companies evading taxes through means such as the Panama Papers. Some people believe that this is because the US has the highest corporate tax rate globally. While the official rate is 35%, most companies pay an actual rate of about 27%. However, some big companies use methods to reduce their tax rate even further. Between 2008 and 2012, 288 of the most profitable companies in America paid an average tax rate of only 19.4%. Notably, some of these companies, such as General Electric and Verizon, did not pay taxes at all during that period. If you are interested in learning more about this subject, you can peruse reports from Citizens for Tax Justice and Congressional Research Service.
Units of the 529 plan investment options are municipal securities and may be subject to market value fluctuation. Before investing in a state-specific 529 plan, you should compare your own state's qualified tuition program and any state tax or other advantages it may provide.
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