TaxationLesson 1 of 3 in the course Income tax

Income Tax: Tax Bases, Collection, History, and Economic Effects

5 flashcards · 5 quiz questions · 5 match pairs · 5 fill-in sentences · English

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Summary

Income tax is a charge on income earned by people and organizations. This lesson introduces the basic purpose of income tax and explains how taxable income and tax rates combine to determine a tax bill.

An income tax is a tax imposed on individuals or entities in respect of income or profits they earn. The person or organization subject to the tax is called a taxpayer. The amount on which tax is calculated is generally called taxable income.

All flashcards

Taxable income
The amount on which tax is calculated after applying relevant rules, including allowable deductions.
Marginal tax rate
The rate applied to an additional unit of income.
Average tax rate
Total tax paid divided by total taxable income.
Withholding at source
Collection of tax from a payment, such as wages, before the recipient receives it.
Tax avoidance
Using legal methods to reduce tax liability.

Quiz questions

  1. Under many residential income-tax systems, how is a resident's income treated?Answer: Worldwide income is generally subject to tax.
  2. What is the usual role of tax withheld from wages during the year?Answer: It is an advance collection that may not settle the final liability.
  3. What did the U.S. Sixteenth Amendment, ratified in 1913, enable?Answer: Federal income taxation without apportionment among the states.
  4. When property is sold, what amount is generally included in income under the systems described?Answer: The net gain from the sale.
  5. Which statement distinguishes tax avoidance from tax evasion?Answer: Avoidance uses legal methods to reduce tax liability.

Based on the Wikipedia article Income tax, licensed CC BY-SA 4.0. Adapted into a summary, flashcards and quizzes.

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