As an individual, it is essential to have a basic understanding of the US tax system to ensure that you comply with tax laws and regulations. Whether you are a US citizen, a green card holder, or a non-resident alien, you may have to file taxes with the Internal Revenue Service (IRS).
In this beginner’s guide, we will provide an overview of the US tax system and the different types of taxes that individuals may have to pay.
Types of Taxes
There are several types of taxes in the US, including federal income tax, state income tax, sales tax, property tax, and Social Security and Medicare taxes.
Federal Income Tax
Federal income tax is a tax on an individual’s income. The tax rate varies based on an individual’s income level and tax bracket. The federal government collects income tax to fund various programs and services.
State Income Tax
In addition to federal income tax, some states also require individuals to pay state income tax. The tax rate varies by state, and some states do not have an income tax at all.
Sales Tax
Sales tax is a tax on goods and services that an individual purchases. The tax rate varies by state and can range from 0% to over 10%.
Property Tax
Property tax is a tax on real estate, including land and buildings. The tax rate varies by state and is based on the value of the property.
Social Security and Medicare Taxes
Social Security and Medicare taxes are taxes on an individual’s wages. Employers are required to withhold these taxes from an employee’s paycheck and remit them to the federal government.
Tax Forms
Individuals may have to file various tax forms with the IRS, depending on their income and tax situation. The most common form is the Form 1040, which is used to report an individual’s income and calculate their tax liability. Other forms may be required if an individual has income from self-employment, investments, or foreign sources.
Tax Deadlines
The deadline for filing federal income tax returns is April 15th of each year. However, the deadline may be extended to October 15th for individuals who file for an extension.
State tax deadlines vary by state and may be due on the same day as federal taxes or on a different date.
Conclusion
Understanding the US tax system can be overwhelming, but it is essential to comply with tax laws and regulations. By familiarizing yourself with the different types of taxes, tax forms, and tax deadlines, you can ensure that you are meeting your tax obligations.
If you need assistance with US tax accounting, JTT Accounting’s Toronto accounting team can help. Our experienced professionals can provide guidance and support to help you navigate the US tax system. Contact us today to learn more.