What is income tax?

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    Every year, you pay a part of your income to the government as taxes to fund and maintain government services and infrastructure. How much tax you pay each year depends on the income you receive and the type of employment you have. 

    Both individuals and businesses pay income taxes. Both federal and state taxes fund the federal and state governments respectively. Federal services include Medicare, Medicaid, and Social Security. Defense, transportation, infrastructure, postal services, and the government itself are other departments that fall under the federal government. Eight states in the United States including Taxes and Washington currently do not collect any state taxes. However, their sales tax, property taxes, and vehicle registration fees are higher to provide state revenue. 

    The government allows for deductions on certain items such as mortgage interest, property taxes, and charity. You can itemize these deductions and subtract the total from your adjusted gross income.  Gross income may include wages, capital gains, and miscellaneous income such as rental property income or unemployment benefits. Depending on how much your income is, you can either claim an itemized deduction or a standard deduction. Your tax bracket also depends on whether you are married, the head of a household, filing individually or filing jointly.

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StellarFinance, Inc. and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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