August 14, 2022

Financial Goal Guide

Attain Your Financial Goal

How To Calculate Your Tax Liability

A tax is a mandatory annual financial liability or any other kind of tax levied on a taxpayer by the government to fund various public expenses and government spending. A tax evasion or refusal to pay, and/or evasion of any payment, is punishable by criminal law. Generally, people pay their taxes but often evade or dodge the taxes by utilizing various legal and complex techniques. These avoidance strategies are often employed by business owners and individuals to minimize their taxes payable.

There are two basic systems of taxation: regressive and proportional taxes. Regressive tax system provides for a tax burden that grows as income increases over time and with little tax evasion or avoidance. Pertinent deductions are allowed on the basis of marital status, marital earnings, investment earnings, charitable donations and various other specified deductions.

Pertinent deductions under the progressive tax system are based on your income. The rates increase as income increases and you are taxed on a progressive scale, irrespective of your source of income. A high earner may find it difficult to meet the tax liability, but there are several means to lower the rate of tax. One option is to increase the income of the individual so that he/she pays the tax in full and hence the net amount payable is less than the normal rate. In such cases the term of the agreement between the taxpayer and the tax authorities is five years and the person will have to pay tax even during the term of the agreement.

For individuals and business owners, it is important to understand and implement a comprehensive tax plan, which entails detailed income tax planning, the preparation of tax returns, the payment of taxes, and the eventual disbursement of the same. Income tax planning must be a priority if one wants to minimize his/her tax liabilities. Income tax planning is essential to ensure that one doesn’t become a victim of the plethora of taxation policies and schemes, which are introduced periodically.

When the basic principles of taxation are understood, one can easily draw up plans to lower his/her tax liability. When there is no clear-cut idea of the tax liability, one needs to analyze the various plans in detail to arrive at the most desirable plan. If you find that your annual income is below the threshold limit for the marginal tax rate, then you would need to rely upon higher percentage rates, which would result in a lower tax bill. On the other hand, if you have a steady and regular flow of income, you would go in for proportional tax calculations and hence come out with a lower tax liability. Hence, it is advisable to analyze the tax circumstances of every individual rationally.

The indirect taxes include such indirect expenses as sales tax, property tax, vehicle registration tax, state tax, franchise tax, property tax, and corporate tax. While assessing indirect taxes, it is important to note that there is no standard rate. Each indirect tax levied has a unique rate of its own and is usually based on a list of factors including the location of the business, size of the business, type of trade carried on, number of employees and the taxes imposed by various government departments. While some of the indirect taxes are levied on a yearly basis, most of them are imputed annually. Thus, it is essential to evaluate each type of tax on a timely basis in order to ensure correct tax liability.

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