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Income Taxes

The federal government is famous for its income tax. Many states and some cities also impose income taxes, usually at a rate much lower than the federal tax. The federal Internal Revenue Service (IRS) administers most federal taxes. The fifteenth day of April of each year is tax day for most individuals. States that impose income taxes have their own individual revenue departments. Many states base their income and tax computation methods on the federal tax return, but, in turn, states have their own systems of exemptions, exclusions, special taxes and rate schedules.

The federal government and most taxing states base their tax rates on income brackets. People who earn more money not only pay more on an absolute basis, but they also pay a higher percentage than those who earn less. On the other hand, high income people also have many advantages and deductions that are unavailable to people with simpler financial structures.

Anyone with a connection to the United States, even if not a citizen or permanent resident, may be liable for federal or state income taxation. If you live and work in the United States, it will be your responsibility to keep up with current tax requirements. If you live more than 180 days a year in the United States (whatever your visa status) the Internal Revenue Service will consider you an American resident, fully taxable on all the money you make in the United States. If you have permanent resident status, you could be taxable on any money you make anywhere (subject to certain credits for taxes paid to foreign countries).

The American legal system has a strong tradition that “ignorance of the law is no excuse,” and this applies especially to the ever-changing tax system. In addition to your legal responsibilities, a good knowledge of tax issues will help you use legal strategies to keep more of your hard-earned money. Always use the tax forms and instructions for the current year.

Next Section:Withholding and Estimated Tax

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