A method of collecting income tax in which the taxes paid increase with the amount of earned income. The driving principle behind vertical equity is the notion that those who are more able to pay taxes should contribute more than those who are not. The two main types of vertical equity are proportional and progressive taxation. In proportional taxation, the amount of taxes paid increases directly with income. For example, a 5% increase in earnings will cause a 5% increase in taxes. Progressive taxation includes tax brackets, where people pay taxes based on the tax bracket into which their income places them. Each tax bracket will have a different tax rate, with higher income brackets paying the highest percentages.
A type of consumption tax that is placed on a product whenever value is added at a stage of production and at final sale. Value-added tax (VAT) is most often used in the European Union. The amount of value-added tax that the user pays is the cost of the product, less any of the costs of materials used in the product that have already been taxed. For example when a television is built by a company in Europe the manufacturer is charged a value-added tax on all of the supplies they purchase for producing the television. once the television reaches the shelf, the consumer who purchases it must pay the value-added tax that applies to him or her.
An assumption by the IRS that interest on a loan has been paid if the stated interest rate is below a minimum. You must state the interest paid on an installment agreement, otherwise the interest rate used is lower than the applicable rate.
An IRS program that utilizes volunteers to help provide free tax preparation services to low-income taxpayers. These services are provided at a variety of public locations such as libraries, schools and shopping malls, in certain high-need areas. Additionally, many locations offer free electronic filing services to qualifying taxpayers. While many low income-tax payers are fully capable of filling out a basic tax form, many lack an understanding of the complex rules for certain tax credits that can aid lower-income tax payers. The Volunteer Income Tax Assistance Program has been instrumental in helping these households receive thousands of dollars in additional refunds. The VITA program is always in need of volunteers and can be contacted at 1-800-829-1040. In addition to the VITA program, the IRS also offers another volunteer-staffed program aimed at helping the elderly (age 60 or older) receive free tax assistance.
An assumption or principle that taxpayers will comply with tax laws and, more importantly, accurately report their income and deductions honestly. This is one of those "ideal world" principles; for example, in an ideal world we wouldn't need police officers.
A tax levied by governments against certain industries when economic conditions allow those industries to experience above-average profits. Windfall taxes are primarily levied on the companies in the targeted industry that have benefited the most from the economic windfall, most often commodity-based businesses. As with all tax initiatives instituted by governments, there is always a divide between those who are for and those who are against the tax. The benefits of a windfall tax include proceeds being directly used by governments to bolster funding for social programs. However, those against windfall taxes claim that they reduce companies' initiatives to seek out profits. They also believe that profits should be reinvested to promote innovation that will in turn benefit society as a whole. Windfall taxes will always be a contentious issue debated between the shareholders of profitable companies and the rest of society. This issue came to a head in 2005, when oil and gas companies, such as Exxon Mobil who reported profits of US$36 billion for the year, experienced unusually large profits due to rising energy prices.
Products on which a value-added tax (VAT) is not levied in countries that use a VAT. Examples of goods that may be zero rated include many types of food and beverage, exported goods, donated goods sold by charity shops, equipment for the disabled, prescription medications, water and sewage services, books and other printed publications, children’s clothing, and financial services. Zero-rated goods can save consumers a significant amount of money. In the United Kingdom, for example, the standard VAT rate levied on most goods is 17.5% and the reduced rate is 5%. However, because the VAT is a hidden tax, which means it is already included in the price of goods, the consumer may be unaware that a good is zero rated. A fourth category of goods - exempt goods - also carries no VAT.
A reduction in the value of an asset or earnings by the amount of an expense or loss. Companies are able to write off certain expenses that are required to run the business, or have been incurred in the operation of the business and detract from retained revenues. For example, if you spend money on dinner to take out a client, that meal is a possible write-off towards your income because you presumably discussed business opportunities during the dinner. Suppose, for another example, you made a sale on credit to a customer, but two weeks later the client's business declared bankruptcy and became completely unable to pay off the credit account with you. This uncollectible debt would then be written-off by your company and recorded as an expense by accountants.
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