Individual Taxation
Individual taxation refers to the system in which governments impose taxes on individuals’ income, earnings, and other personal financial transactions
1. Types of Individual Taxes
- Income Tax: Levied on wages, salaries, and other earnings.
- Capital Gains Tax: Applied to profits from the sale of assets like stocks or real estate.
- Self-Employment Tax: Paid by freelancers and business owners to cover Social Security and Medicare.
- Payroll Taxes: Withheld from wages to fund Social Security and Medicare.
- Estate and Gift Taxes: Imposed on the transfer of wealth during life or after death.
2. Tax Filing and Compliance
Individuals must report income and deductions on tax returns, typically using Form 1040 in the U.S. Deductions and credits can lower taxable income (e.g., Standard Deduction vs. Itemized Deductions). Tax brackets determine the percentage of income taxed, with progressive rates applied in most systems.
3. Tax Planning Strategies
- Retirement Contributions: Contributing to 401(k) or IRA accounts can reduce taxable income.
- Tax Credits & Deductions: Claiming child tax credits, education credits, or mortgage interest deductions.
- Investment Strategies: Holding assets long-term to benefit from lower capital gains rates.