Taxes are one of the most important aspects of a civilized society. They help fund government functions and ensure that everyone pays their fair share. Unfortunately, taxes can be complicated—especially when it comes to terminology. That’s why we’ve put together this comprehensive guide to tax terminology.
If you are looking for Federal income tax information, you may browse IRSExtension.
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There are many types of income that you may receive during your lifetime. Each has its own set of tax rules and responsibilities. This article will outline the most common types of income and explain their associated tax consequences.
Wages and Salaries: Wages and salaries are the most common type of income you'll receive. These payments are generally taxable when you receive them, regardless of how long you have been employed for. Most wages and salaries are subject to federal taxes (such as Social Security, Medicare, and IRS withholding), as well as state and local taxes.
Interest Income: Interest income is another common form of income. This includes interest from bonds, stocks, and other investments. Unlike wages or salary, interest income is typically taxable only when it is received in cash form. This means that you might be able to exclude some interest income from your taxable income if it's paid through a loan or through a savings account that earns less than 0.05% per year on average.
Dividends: Dividends are another form of revenue that companies often pay out to shareholders. These payments are usually taxable as ordinary income, even if you have owned the stock for less than one year. The exception to this rule is dividends distributed by mutual funds, which are typically taxed at a lower rate than traditional dividends.