How is income tax calculated – our business
How is income tax calculated? Which is considered one of the direct taxes imposed on individuals, companies and institutions after calculating it in an accurate and organized manner according to the amount of income and profit of each of them. This tax is also considered one of the main sources of income for countries through which they can provide products and goods and pay the obligations imposed on them, in addition to many other things. So, dear reader, if you want to increase your knowledge about the income tax law, as well as personal income tax and corporate income tax, follow us in our next article How is income tax calculated? Via our trading platform to the end to get all the useful information you want.
How is income tax calculated?
Income tax is calculated according to special rates within the tax brackets by calculating the final income after deduction and deduction from it so that it is classified within the bracket to which it belongs. It should also be noted that the method of calculating income tax differs whenever the percentage of profit and the amount of income differ. Where we find that the tax rate for high income earners is higher than the tax rate for low income earners. Likewise, each country has its own income tax law, which determines the amount and rate of this tax.
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Information about income tax
Before getting to know how income tax is calculated, information must be gained about this tax, which is subject to a specific law, which is the income tax law recognized within each country. Income tax is a type of tax imposed on individuals and institutions by the central government. The state also depends on this tax for the following purposes:
- Payment of obligations.
- As well as financing services.
- In addition to providing the goods needed by the citizens.
- upgrading the infrastructure.
- As well as providing health care.
We also find that the income tax calculation is directly proportional to the income rate of the institution or individuals. The income tax for individuals is also different from the income tax for companies and institutions because the income tax for individuals is subject to many exemptions.
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Income Tax Law
The calculation of income tax in countries depends on the tax law applicable within them. But in general, the income tax law is a set of rules and laws that assess the percentage of taxes and collect them according to the legal context. The Income Tax Law is also subordinate to the general law of the state and is imposed on individuals, companies and institutions. Likewise, the types of taxpayers are classified according to the Income Tax Law into certain categories, namely:
- Persons residing within the country.
- Persons not residing within the country.
- So are families.
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personal income tax
Personal income tax is a tax levied on the entire undivided family or individual income, as well as any non-corporate taxpayer. Personal income tax is also calculated by adding the total income to the income received for one year. Likewise, the Income Tax Law determines the percentage that must be subject to tax, as the government supervises the collection and regulation of these taxes. There are also some adjustments to the personal income tax, either in the form of additional fees imposed by the government or taxes due that a person can recover.
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corporate income tax
Corporate income tax is a tax that companies pay based on the amount of profits they generate from their business. The Income Tax Law also specifies the percentage and method of calculating corporate income tax according to the Tax Authority. The corporate income tax also includes the following:
- So are partnerships.
- Freelance contractors.
- It also includes small businesses.
It is also common for some special provisions to be enacted on corporate income tax and relate mainly to the tax base and also the timing of recognition of deductions and income as well as tax collection, but timing is the most important by a large proportion among them. The relationship between tax and financial accounting, which is considered a complex relationship, must also be taken into account. Also, the compatibility between tax and financial accounting is generally preferred and desirable. But we note that some countries have achieved a permanent compatibility between them while among others we find them independently.
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property tax and sales tax
After learning how income tax is calculated, the property tax imposed by the government on real property or personal property of an individual should be known. Where the value of the property is estimated and accordingly tax is imposed in proportion to the value. It also determines the tax amount due by multiplying the current tax rate with the correct market value of the property. But as we all know that the value of real estate is constantly changing, so the value of the tax varies according to the price of the property. Whereas for sales tax, it is a consumption tax that is imposed on services and goods purchased at the retail level and paid by the consumer, which the retailer transfers to the tax authority.
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Income tax exemption
While calculating income tax, many sources are excluded, according to the income tax law, and these sources are as follows:
- health insurance.
- Accident insurance.
- Donations and gifts eg charitable donations.
- As well as study costs.
- Also life insurance.
- Inheritance is also excluded.
- In addition to individuals below the poverty line.
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There are many types of taxes imposed within countries, depending on the country. As the name of the tax may differ from one country to another, the most important types of taxes are as follows:
- VAT: It is considered an indirect tax, as the consumer pays this tax whenever he purchases a commodity or whenever he requests a service. The value of the value-added tax also varies between countries. But it usually ranges between 7% and 20% of the value of the service or good that was purchased.
- Income tax: Unlike value-added tax, income tax is a direct tax. Where income tax is calculated according to the monthly income of individuals while companies pay it according to the percentage of their profit.
- like that Wealth tax.
- Add to Tax on imports.
It is also possible to classify taxes according to the method of their calculation as follows:
- Proportional Tax: It means that the tax rate is not related to the value of money or income.
- Progressive tax: While within the progressive tax system, the rate of the tax value increases as it increases and the amount to which this tax is applied increases.
- Regressive tax: Likewise, within the regressive tax system, the rate and value of the tax are reduced by the increase and increase in the amount of the amount subject to this tax.
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Based on the foregoing, we conclude that the value of income tax is calculated and applied to individuals and institutions according to the income tax law prevailing within the country, which also varies from one country to another. So we hope that our article How is income tax calculated? Provide you with the information you need.