An income tax is a government levy (tax) imposed on individuals or entities (taxpayers) that varies with the income or profits (taxable income) of the taxpayer.

Details vary widely by jurisdiction. Many jurisdictions refer to income tax on business entities as companies tax or corporation tax.

Partnerships generally are not taxed; rather, the partners are taxed on their share of partnership items. Tax may be imposed by both a country and subdivisions thereof.

Most jurisdictions exempt locally organized charitable organizations from tax. Income tax is generally computed as a tax rate‘s product times taxable income. The tax rate may increase as taxable income increases (referred to as graduated rates).

Tax rates may vary by type or characteristics of the taxpayer. Capital gains may be taxed at different rates than other income. Credits of various sorts may be allowed that reduce tax.

Some jurisdictions impose the higher of an income tax or a tax on an alternative base or measure of income. Taxable income of taxpayers resident in the jurisdiction is generally total income less income producing expenses and other deductions.

Generally, the only net gain from the sale of property, including goods held for sale, is included in income. The income of a corporation’s shareholders usually includes distributions of profits from the corporation. Deductions typically include all income-producing or business expenses including an allowance for recovery of costs of business assets.

Many jurisdictions allow notional deductions for individuals and may allow deductions of some personal expenses. Most jurisdictions either do not tax income earned outside the jurisdiction or allow a credit for taxes paid to other jurisdictions on such income.

Nonresidents are taxed only on certain types of income from sources within the jurisdictions, with few exceptions. Most jurisdictions require self-assessment of the tax and require payers of some types of income to withhold tax from those payments. Advance payments of tax by taxpayers may be required. Taxpayers not timely paying tax owed are generally subject to significant penalties, which may include jail for individuals or revocation of an entity’s legal existence.

About the author 

Nathan Tarrant

Nathan has worked in financial services, marketing, and strategic business growth for over 30 years, as well as working in internet marketing since 1998.

In 2008 after the financial crash, Nathan operated as a financial & investment advisor to delegates of the United Nations, the World Health Organization, and senior managers of Fortune 500 companies in Geneva, Switzerland.

He started Gold Trends as he enjoys working with alternative investments, having advised on them in the past.

Please note: Nathan is no longer a financial or investment advisor. The information he shares on this site is purely for education and information purposes only. You can read more on the About page.

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