Can’t Pay IRS experts can help you deal with the
IRS,and may be able to create a payment plan with
the IRS, negotiate late fees and interest penalties,
or even reduce the amount you owe.

Click HERE for a FREE Tax Consultation!

Can’t pay IRS services include
Offer in Compromise
Penalty Abatement
Wage Garnishment
Bank Levy
Payment PLan Innocent Spouse
Lien Subordination
941 Payroll Issues
Un-Filed Tax Returns
Audit Defense
State Tax

Click HERE for a FREE Tax Consultation!

The alternative minimum phaseout exemption amount states that the exemption of any taxpayer decreases by twenty-five percent (that is, twenty-five cents per dollar) of the excess over certain amounts by means of the minimum taxable income of the taxpayer. That is to say, corporations or individuals filing a joint return as well as surviving husbands or wives whose alternative minimum taxable income exceeds one hundred and fifty thousand US dollars shall have their exemptions reduced to twenty five percent of the excess. The same is true and applicable to single individuals or individuals who are not surviving husbands or wives whose alternative minimum taxable income exceeds one hundred and twelve thousand and five hundred dollars and married individuals filing separate tax returns or trusts whose alternative minimum taxable income is more than seventy-five thousand American dollars.

Having mentioned, that we can move on to discuss the tentative minimum tax. Once you have calculated your alternative minimum tax taxable income, you will then apply your twenty-six or twenty-eight rate schedule so you can arrive at your tentative minimum tax. Once you arrive at your tentative minimum tax, it should be compared to the regular income tax that you have calculated. Again, if your regular income tax happens to be less or smaller than the tentative minimum tax, then the excess of the tentative minimum tax is added to the usual tax amount that you have to pay – meaning you have to pay for the entire tentative minimum tax. However, if (and only IF) your tentative tax fails to exceed your regular tax, then that means that you would be exempted from paying the entire tentative minimum tax and would instead be expected to pay the regular tax instead. In a way, one can think of the tentative minimum tax as a combination of the regular tax and the alternative minimum tax (that is, a the regular tax enhanced by a special additional tax). But one thing is for certain here – the higher value in this case is most definitely favored as the amount to be paid.

Having said that, we can now continue to discuss the effective marginal rates in the alternative minimum tax system, and for that we have to take up the alternative minimum tax exemptions with a little more detail. It was said that in 2007, the alternative minimum tax exemption would not be fully phased out until the alternative minimum tax taxable income is in excess of four hundred and fifteen thousand dollars worth of joint returns. That being said, the true marginal federal tax rates for taxpayers expected to pay AMT are as follows: in the one hundred and fifty thousand to four hundred and fifteen thousand range, the tentative minimum tax rates of twenty-six percent and twenty-eight percent are multiplied by one point twenty-five (so they would be thirty-two point five percent and thirty five percent respectively), meaning that the tentative minimum tax rate for capital gains would be twenty-one point five percent or twenty-two percent (instead of the standard fifteen percent) because, again, twenty-five percent of each excess dollar of ordinary income will be taxed at twenty-six or twenty-eight percent. Take note that the rates of the tentative minimum tax is higher in the lower income range compared to regular tax rates. What all of this means (in summary) is that liability in the alternative minimum tax system – that is, the excess of the tentative minimum tax over the regular tax – rises in accordance with your income’s climb above one hundred and fifty thousand dollars.

It should be mentioned, briefly, that state income tax is never deductible under the tentative minimum tax; and considering the aforementioned higher tax rate and the steeper tax liability, this makes for some increased tension with regards to the feelings of the public in relation to this tax. Other problems that taxpayers have with this particular tax system shall be further discussed later. For now, let’s look, very briefly at the last two elements of the structure of the alternative minimum tax system: the AMT carry-forward credit and the adjusted current earnings.

When it comes to things like the carry-forward losses, the carry-forward passive losses the carry-forward tax credits and the carry-forward cost basis in the alternative minimum tax system, one should remember that again, this system has a very different way of handling these eventualities. But before we can fully understand that, we have to understand how basis assets work in the alternative minimum tax system.

To be sure, assets like real property and stocks help you figure out how much profit or loss you have to report once you have relinquished it (that is, once you have sold it). Assets, when used in this manner, are called basis assets. Usually, assets have one or a singular basis in the regular income tax system. In this case, your asset’s basis relies on the cost you had to shell out in buying it added to additional costs in your quest for acquiring it (the best example of this would be brokerage fees). However, when the alternative minimum tax comes into play, one will find that the asset would have a completely different basis (and often, the basis is higher for the alternative minimum tax), turning the asset into a dual basis asset whose bases serve different purposes. So in effect, any gains and losses determined on the alternative minimum tax system would be distinct from the gains and losses under the regular tax.

So what makes the difference between the asset basis of the alternative minimum tax and the regular tax? As was mentioned before, the regular tax basis relies on the cost you had to shell out to BUY the asset and amount you had to pay in order to acquire it. This is not, however, definitive – the basis of the asset is subject to adjustment such as deductions in the event of value depreciation and the like. Under the regular tax system the deduction applied to the basis of the asset serves to reduce the basis of that asset by the value deducted. But the alternative minimum tax works very differently in cases such as this – under the alternative minimum tax system, you have to use a different (and more troublesome) depreciation schedule for your deductions. What this means is that you have LESS deductions for the asset with alternative minimum tax than with the regular tax, thus explaining why more often than not, the basis of the alternative minimum tax is much higher than that of the regular tax.

In terms of credit, what this means is that selling your dual basis asset whose alternative minimum tax basis is higher than that of the regular tax will garner you a negative adjustment – the negative adjustment can be used to increase the usable alternative minimum tax credit instead of simply lowering the amount of tax to be paid.

That being explained, the alternative minimum tax credit sort of works like this: the part of the tentative minimum tax that we consider to be the alternative minimum tax is carried forward so that in the future, it may be used as a minimum tax credit, which may reduce the amount of regular income tax you may have to pay while at the same time not allowing one to pay less than the tentative minimum tax to be paid for those same years. Provided that you keep the value of your regular income tax above the tentative minimum tax (even with the minimum tax credit), you WILL be able to reduce the total amount of taxes that you owe the federal government. The tax credits, like all credits, are of course subject to diminishing, and it should be pointed out that credits garnered from the alternative minimum tax have in some ways become a popular means of lowering tax dues.

Finally, we have the adjusted current earnings wherein certain items that are considered income, deductions, credits and the like are defined and therefore treated in a vastly different manner under the alternative minimum tax system compared to that of the regular income tax system. The best example of this, unfortunately applies to that of corporate alternative minimum tax and not of personal minimum tax – but as we are about to move on to discuss the alternative minimum tax as applied to corporations anyway, we may as well use the example. Examples of how the alternative minimum tax treats income, credits and deductions differently from regular tax would be the “running balance” of a corporation’s excess increases (in total) in alternative minimum tax taxable income from the year previous, adjusted earnings at present (also known as adjusted current earnings), and adjustments over the total reductions in the alternative minimum tax taxable income from the previous year’s adjustments. (To be continued in next article)

To be clear: the alternative minimum tax is a federal tax, which means it is not applicable in the state or local levels. Also, it should be remembered that the alternative minimum tax is an income tax – meaning, of course, that its rates cannot be levied on anything other than income. The alternative minimum tax is usually regarded as an “extra tax”, that some taxpayers are required and expected to pay on top of the regular tax liability. It is, as a tax system, quite separate from the regular income tax system – which, of course, means it has rules that are uniquely its own.

There are, in fact, two kinds of alternative minimum tax: one is applicable to those who are paying personal income tax, while the other is applicable to corporate income tax. We will discuss the alternative minimum tax applied to the personal income tax first – but before that, let us delve into the brief but fascinating history of the alternative minimum tax.

Some time in the 1960’s it became quite clear that some high-income households are managing to legally avoid paying their taxes by means of applying for eligibility for certain tax benefits – the tax system at the time, of course, allowed for such loopholes. This caused a lot of problems for the federal government in terms of raising revenue because of many factors – including but not limited to the fact that many of the less fortunate masses (the middle class) feel cheated and think that the high-income taxpayers are favored and thus given more exemptions, and the fact that the tax rates (should they be payed by the high-income taxpayers) will be a fairly high value, if not percentage, in terms of revenue collected. This is why in 1969, the Tax Reform Act of 1969 included the alternative minimum tax in its reforms – the alternative minimum tax was enacted immediately the next year.

This begs the question of who falls under the category of the taxpayers that would have to pay the alternative minimum tax. And while most may know the answer to this question, we may as well go off another tangent and discuss tax liability in the context of the regular income tax system versus tax liability in the context of the alternative minimum tax system.

Under the regular income tax system, the regular tax liability for a standard tax year allows for certain exemption amounts, though that doe not mean that there are no exemptions that apply to the alternative minimum tax – in the case of personal income taxpayers (or, as the US Code refers to them, taxpayers other than corporations), the exemption amount of the alternative minimum tax is forty-five thousand dollars in the case of a return shared with another person or in the case of husband or wife that survives you, thirty-three thousand seven hundred and fifty US dollars in the case of unmarried individuals or individuals who are not the surviving husband or wife, fifty percent of the dollar amount of forty-five thousand dollars should one decide to file a separate return from his or her spouse, and twenty-two thousand five hundred dollars in the case of an estate or trust. Then, there are the various deductions that were mention in the previous articles describing federal income taxation which further lowers the amount of tax to be paid by an individual. These values are, of course, subject to changes in the events of various amendments and reforms, but otherwise the current system in place allows for the dollar values and circumstances listed above.

That being said, the tax liability of the alternative minimum tax system still allows for fewer of the exemptions and deductions that are applicable to the regular income tax system. It should be remembered that the minimum rate of the alternative minimum tax for personal income taxpayers moves between twenty-six percent or twenty-eight percent of a taxpayer’s income, the difference depending on the adjusted alternative minimum taxable income. Again the function of the alternative minimum tax system is to ensure that some taxpayers would not be allowed to lower their taxes to a point wherein they would be almost nonexistent. This particular tax is applied to individuals who have what is referred to as “tax preference” items. Tax preference items include but are not limited to the following: long-term capital gains (that is, profits on capital asset exchanges), accelerated depreciation (that is, when certain assets whose values decrease over time lose value much more quickly), percentage depletion (that is, where the flat percentage of the income is at a loss), some medical expenses, some tax exempt income, and particular credits, standard deductions and personal exemptions.

Now that we have that settled, we can move on to discuss how exactly the alternative minimum tax works. The fact of the matter is, the principle of the alternative minimum tax is deceptively simple: a taxpayer who falls under the category as detailed above – a taxpayer who has certain “tax preference” items to be detailed in his or her tax return – will be asked to calculate his or her taxes under both the standard income tax system and the alternative minimum tax. If the taxpayer’s tax in the alternative minimum system turns out to be a larger amount or value than that of the resulting tax under the regular taxation system’s rules, then the taxpayer will be expected and required to pay the excess amount. In other words, we take the resulting amount of both tax systems, subtract the value of the regular income tax from the value of the alternative minimum tax, and we will arrive at the amount that the regular taxpayer has to pay as alternative minimum tax – on TOP of the regular tax to be paid – thus awarding the alternative minimum tax a title of an “extra” or “additional” tax.

In order to better understand this, we will have to take up the STRUCTURE of the alternative minimum tax system in order to understand how it is calculated. One important thing that we should remember is that one takes into account the regular tax code calculations when trying to determine the taxable income in the alternative minimum tax system, but EXCLUDES certain allowable deductions and adds the tax preference items listed above. In other words, the taxable income in the alternative minimum tax system pretty much most of one’s income minus the AMT exemptions. (To be continued in next article)

In the United States of America, especially, we have to take note of the fact that most of the American states have at least one of those uniformity clauses which, as the name implies, suggest a degree of uniformity in collection of taxes such as the excise taxes, the impost taxes and the duties taxes. Of course, each state has a different wording and interpretation of this uniformity clause – this clause is geared towards the maintenance of equality throughout the United States of America, favoring no one state over the others. And because of these different interpretations of the uniformity clause, some states can and will rule land value taxation as unconstitutional. Places like Pennsylvania, of course, have a uniformity clause that allows land value taxation, but for the most part, each and every state in the United States of America has a legal ruling on the status of land value taxation. Much of the problem lies within how each state constitution defines (or does not define at all) the types of property classification – these definitions, of course, fall under the uniformity clause. For the most part, state courts have not yet ruled specifically that improvements and land are separate “classes” of property – which would, of course, provide the need for the application of the uniformity clauses. But, as a rule of thumb, most states allow taxation of each type of property (such as personal property, improvements, and land property) AS LONG AS THEY ARE UNIFORMLY TAXED.

Now, most supporters of the land value taxation system point out that so far, no state (except for that one case back in 1989, in Hyattsville, Maryland which ruled that the area’s specific use of land value tax goes against their constitution) have solidly and specifically declared under the uniformity clause that land value taxation conflicts with the state’s constitution. In fact, they could also point out that there are doubts as to whether or not uniformity clauses actually specifically state that separate land value taxation is prohibited. That being said, they firmly state that the “legal problem” argument in the state level is pretty much moot.

That is not to say, however, that the legislature of the local authorities would not be problematic in this case, because at the moment, it would be legislation on the local level that blocks the ability of the separate land value taxation system from pushing through to becoming standard in the state and local taxation system of the United States of America. Some local legislations, after all, allow for particular municipal bodies to impose separate land value taxation while others do not, and some counties specifically make provisions to prevent any action that would lead to the implementation of the separate land value tax in their territories.

Although it is not necessarily applicable to the United States of America, critics of the separate land value taxation system who use the legal problem arguments against it point out that in certain areas, it is quite difficult to ascertain the land title property ownership of the land, thus making it virtually impossible to properly implement the tax. Because the land value property tax is firmly dependent on the payment of the land property owner ALONE and no one else, the event of the undetermined ownership would throw the entire system off and would further decrease revenue.

That being said, however, the issue of the land value property tax system just proves that each and every state as well as each and every locality has indeed the right and authority to impose taxes on their citizens, provided that they are bowed to a higher (that is to say the federal) constitution of the United States of America.

That just about wraps up the discussion of the most important type of tax on which the state and local governments depend on for revenue – the property tax, and its different incarnations throughout the many states of the United States of America. Now, we move on to discuss (a little less thoroughly) the other, different taxes levied on citizens on a state or local level.

Again, certain taxes like sales taxes, excise taxes and use taxes are implemented to supplement the revenue already collected from the property tax systems – with sales tax being a tax that you pay at the point of purchase of a specific service or good, excise taxes being a tax levied on goods produced WITHIN the United States of America (which typically involve gasoline, alcohol and tobacco products) and use taxes being a kind of excise tax imposed on items from outside the state. There are special taxes, like the severance tax, which are imposed in states that produce timber, minerals and oils (in other words, energy products). Severance tax is a kind of ecotax (that is, a tax that promote ecologically sustainable activities via economic incentives) is a tax that is paid on the PRODUCTION, and not the SALES of products. Then, there are taxes paid for using hotel rooms within the state, which is beneficial for the community in that they do not necessarily have to pay this; out-of-towners are expected to do that. Some states, however, choose to not impose sales taxes, and neither do some localities.

These are not, of course, the only means of generating extra revenue for the state. Another means by which the state or local authorities can collect money from their citizens would be to impose an income tax.

To be sure, income taxation on the state and local level is a little different from income taxation at federal level, although income taxation on the state and local level is pretty much based on the federal income tax system. Of course, income tax on the state and local level has to be tweaked somewhat in order to make sure that it does not in any way undermine the federal income tax that all qualified taxpayers have to pay – and in order to make sure that the income tax system would be specific to the state and would not in any way go against the constitution of the said state. One of the income tax tweaks on a state or local level would be to include one or two income sources in the state definition of income that is not included in the list of taxable income on the federal level.

What this means, though, is that the income defined by the state is added to the federal taxable income so that the state income tax may be determined. Some localities can even impose income tax on a non-resident, provided they work in the area of jurisdiction. However, it must be pointed out that not all states and localities impose personal income tax, and some states only tax dividend and interest in corporate income.

Strangely enough, state government more often than not is financed by sales and income taxes coupled with corporate registration fees, despite the fact that much of their taxation power involve property taxation (although some may argue that they have given the power of property taxation to more local governments).

State governments in the United States of America may have considerably less power than the federal government in terms of powers of taxation, but that does not at all mean that they have less influence. If anything, state and local governments have more influence over their citizens than the federal government, as they are closer to home, and as the benefits of that level of taxation is better recognized. Either way, however, taxation issues that have been brought up – within states and municipalities as well as across them – allow the convictions of the communities and citizens to be recognized and, to some degree, respected.

One of the biggest problems that are pointed out by the opponents of the land value tax system would have to be the fact that sufficient revenue is difficult to raise using this system. That is to say, in order for the land to make the sufficient revenue, one should expect to have the tax rate higher than the rate of return on land – and obviously, this unfair deficit in profit on the part of the owners of the land are more likely to inspire the abandonment of the land property than the retention of the property for continued use. Another possibility that may be inspired by this particular problem of the land value tax system, others point out, would be the heightened possibility of taxpayers evading taxes of this type, legally or illegally.

Another problem that a local government and community would face when adopting the land value taxation system, mentioned before, would be the reduction in the asset or real estate value of the property for the benefit of the property owner. This is because the land value tax increases the taxation of the “discounted present value of future after-tax rents”. This often dramatic decrease in the value of real estates, the opponents of the land value taxation system point out, are especially problematic for institutions that are dependent on the state of finance or the financial standing of the economy and their clients – examples of these establishments and institutions include banks that have a focus on real estate mortgage debts. Making things shaky for such finance-based institutions tend to shake up the financial system of the community as well. In the land value taxation system, the value of the land CAN be reduced to as low as zero (provided all the rent is recovered), and the private sector would lose much of its money because the total of privately-held asset value would drop by a quarter. (To be continued in next article)

For example, there are more perceived advantages to the adoption of the two-rate land value property tax than one might imagine – remember, the two-rate land value property tax entails two separate rates for the land property in question and for the improvements made on said property; the land property tax rate being higher than the improvement of property tax rate. Believers and supporters of the two-rate land value property tax claim, for example, claim that there is a relationship between a high land value tax and high economic activity. A published paper on Georgist economics theory made a comparative analysis between single-rate and two-rate property taxation in Pennsylvania and concluded that the two-rate land value property tax encourages constructions and therefore improvements in infrastructure that would attract a more active economy. That is to say, the easier it is for people to build buildings in an area, then the easier it is to develop new businesses and a firms that would generate income for the community.

In general, as was mentioned before, land value taxation is is seen as a tax that makes little to no distortion in terms of economic decisions. That is to say, since land value tax does not necessarily require you to efficiently make use of the land being taxed, there would be little risk of excess burden of taxation. Sure, the market price of the land tends to decrease this way, but the tenants renting the land would not be subject to the land value tax – only the landlord is responsible for it. There is also less risk of having deadweight losses in land value taxation compared to other means of property taxation.

Another benefit of the land value tax system would be the fact that it encourages the efficient use of land, if not the practical and constant circulation of unsold properties. Perhaps the best way to explain it would be like this: paying for the land value tax means that landowners are pressured to develop under-used or even vacant property. The regular tax system often allows landowners to hold on to under-used or vacant properties, claiming that the improvements “can be or are to be done at a later time”. Of course, that is a purely speculative venture, and would hardly be productive in terms of harnessing the potential of the property. Discouraging this behavior, the land value tax system would either get the landowners to do something productive with the property or put the market back on the market so that they would not decrease the incidence of vacant lots and the wasting away of locations. The discouragement of speculative ventures by means of land value taxation has two other effects: renters themselves are discouraged from speculating over the future or probable value of the land once developed (thus decreasing a degree of economic stagnation), and the “immediate improvement” mindset brought forth by the land value taxation system will increase the value of adjacent land properties (like in special assessment property taxation), putting the tax burden of the improvements on the persons who are most likely to benefit from them.

Supporters of the land value tax system also point out that this particular system of taxation is pretty easy to understand, as it is a very straightforward affair in terms of assessment: all one needs is the name of the owner of the property and the valuation of the land. There is little to no need for forms, no need to deal with personal questions in filing (as is the case with income taxation), and – perhaps to the benefit of the government levying this tax – there is no way of evading this tax because it’s very difficult to hide a piece of land. Also, figuring out the value of the land instead of the value of its improvements make life easy for the assessors – the multitude of variables that are taken into consideration when determining a regular property tax is undoubtedly more complicated than the determination of the the land value property tax.

Then, there is also the argument (especially in Georgist economic theory) that land value taxation is based not on production costs, but rather on scarcity and desirability in the context of usefulness – that is to say, how much land one actually has versus the needs of the community for property that will serve as homes, leisure spaces and work spaces. Unimproved land, being unimproved, therefore has little value save in the context of the community. And, since this is a way of saying that the entirety of the land belongs to the community and is thus figuratively rented out, which is a fair way of looking at things. (To be continued in next article)

To be clear, the government (state, local or otherwise) determines their budget based on what projects and expenditures are required to keep the scope of their governance running smoothly. The budgets naturally have to be balanced – that is to say, the budget needs to be fair not only to the parties involved, but also fair in terms of project focus – one cannot unfairly favor road construction, for example, over public schooling. Often, the budget is based on a municipal level (that is to say, every city or township is required to have its own budget plans).

The reason why the budget has been brought up is because the rate of taxes and the methods of property taxation are inextricably bound to the very concept. The municipal budget must be determined before the legislation could figure out how the money is to be collected and used. Tax authorities also review the budget in order to levy the tax, review the appeals, and determine the appropriate balance. Only then will the appropriate tax rate be put into effect by means of dividing the budget of the city or township by that same municipality’s assessment role. Again, what an individual pays for property taxes is the assessed value of his or her property multiplied by the determined tax rate.

It must be pointed out that in the United States of America, there are some areas have special assessments on top of the regular assessments of property tax value. These special assessments deal with certain areas (called Special Assessment Districts) that have received perks from a public project, thus allowing that particular piece of real estate to be levied with a special tax. The property tax here serves to pay back whatever money had been spent for the purpose of the public improvement that has increased the value of the real estate being taxed under special assessment. Some of the favorite examples involve the sudden hike in real estate value due to the building of better roads, the installment of drinking water lines, or even the inclusion of improved sanitary systems. But special assessments also include areas whose market value has improved with much thanks to the addition of street lights, storm control, public security services and the like. By law in America, it’s more common that the citizens involved are taxed for the FUNDING of said projects (instead of being taxed AFTER THE FACT) by the government, and the court often rules on the side of the government demanding the levy. The special assessment property taxes are not subject to rates, however: they are under a fixed charge, meaning that the actual assessed value of your property has no bearing on the amount you have to pay – everyone paying the special assessment property taxes pays the same price.

Yet another kind of property tax, as was mentioned before, is the personal property tax, which pretty much taxes personal property that could be considered luxury or fluid. The more popular examples of personal property subject to taxes in America include cars, boats, airplanes and other types of vehicles. Furniture, displays (such as pieces of artwork) and electronics may also be subject to American property taxes as much as business inventories (lists of goods associated with one’s business) and intangible assets (that is, stocks and bonds) are.

Another thing that must again be pointed out is the fact that in some states, the real estate tax can be separated into two different taxes – the first tax being levied on the value actual land and the other being levied on the value of the structure or “improvement” made on the land. Remember, in most cases the value of the land and the building are combined to determine the overall value of the real estate property. But in states where the two elements are separated (which may be because some land owners own land but don’t build anything on it or do anything with it), the rates of either are separated and/or differentiated. The tax levied on the land is called land value taxation.

One should remember that despite the apparent preference to combine the value of the land and the “improvement” in order to determine a “full real estate tax” (more commonly known as a single rate real estate tax), land value taxation has nevertheless been around for a very long time – since around the beginning of agriculture, in fact. As one of the oldest forms of taxation, the land value tax could be seen as one that has very practical aspects attached to it, as it is a “location-based tax”. In modern United States of America, one can no longer say that we keep up the “pure form” of the land value tax.

Like what has been mentioned, only some states and cities separate the land value tax and the improvement tax, opting to go with a full real estate tax. The most notable examples of these places are thought to be subject to “two-rate real estate taxation”, which is, of course, where the tax rate for the land and for the improvement are different. Often, the tax rate levied on the land is much higher than the tax rate levied on the improvement or the structure. Pennsylvania, among all the states in the United States of America, is said to be the one with the most number of cities that implement this two-rate real estate tax.

There are, of course, advantages and disadvantages to using the two-rate real estate tax system – this is, as was mentioned before, true for a lot of tax systems all over the world; no tax system is perfect. Even though some believe that the regular tax system is more convenient in terms of calculating the amount one must pay to the government (that is, it would be less confusing to pay just one tax for your real estate property than paying for two separate taxes for that one location) it must be said that some believe the valuation of the real estate tends to be more accurate under the land value tax system. (To be continued in next article)

The first thing that we remember, and this is quite obvious but could never be stressed enough, is that each state has a different tax system from the other state. While this fact should be common knowledge, there have been some cases of people being shocked at the different tax rate they have to pay in the event that they move from one state to another (whether the move was for personal or professional reasons). But that doesn’t have to mean that these systems and rates would be vastly different.

Again, in the United States, the local governments are very much concerned with property taxes, more often than not, taxes on real estate. While it is true that income tax is also levied by the state and local government (to be discussed later), property taxes – real estate taxes in particular – are generally thought of as more favorable than income tax in this level. The reason why property taxes are considered better than income tax in the point of view of the government is because the tax that is charged in this case always generates the same value of revenue. Income and sales taxes tend to fluctuate because of things like shortfalls, and dependence on income taxes and sales taxes leave insufficient funding and other deficits in the budget.

In any case, property taxation in the United States of America is levied in terms of two things – the value of the land, also known as the site value, and what is going to be done to “improve” the land, also known as the building value. For the most part this is only true for property that will be used for business purposes and the like, although some states in the Unites States of America also opt to levy a tax on personal property. That being said, we go back to how the value of the property is assessed.

In order to determine the value of the real property concerned, we need a property or tax assessor, who is a trained expert in figuring out how much a particular property is worth – in the United States of America, the property or tax assessor is actually a person who appointed or elected in the local government, and his job is primarily to calculate the value of every taxable property in the county, municipality, city or township of his or her jurisdiction. While there are of course property assessors who work for the benefit of insurance companies, the local government-elected property or tax assessor’s primary goal is to provide the information the government needs in order to figure out the right rate of taxation to be levied so that the community in question may be appropriately supported by the money collected annually. So in a way, assessors in the United States of America con be considered as ones in a very specialized profession; “assessors” in America who are not elected for this job but are working for private companies are thus referred to by other names such as “appraiser” or adjuster”.

But going back to the point: the tax assessor offices that exist in each local government keeps records and inventories of information that pertain to changes or improvements to real estate. This way, the locality is kept up-to-date with regards to taxable properties and their values. Also, with the help of surveyors (that is, those people who study data that supports the establishment of property boundaries – at least, in this context), they also maintain what we call tax maps, which contain individual properties and are uniquely identified. The purpose of these records, particularly these tax maps, is to make sure that there will be no properties left out from the tax rolls. The tax maps also ensure that a property is not taxed more than once in a single tax year.

One cannot say that the assessor’s duties are particularly easy. There are many ways by which the value of the land and the value of the improvement can be determined in the context of real estate, and these involve things like the market value or replacement value of the property as well as the income approach (which involves income generated by the property). In most cases, the public is also given the chance to question the valuation determined by the assessor, and thus this property owner’s appeal will subject the assessor and his assessment to a judicial or administrative review, based on the contention.

In any case, the value of property taxes is pretty much dependent on the fair market property values of each individual property or estate. So what the assessor of the locality actually does is to calculate the property’s value, figure out the established assessment rate off of that, and then applying said assessment rate to the fair market value. He or she multiplies the the tax rate by the assessed property, thus arriving at the appropriate value of the tax due. The taxes are then collected (not by the assessors, but another government official) by locality – that is to say this tax is collected per city, per county and per district. What this tax funds includes budgets for that municipality’s or area’s schools, parks and recreation establishments and programs, medical institutions and services, industrial maintenance, libraries, public safety services and institutions, and other places and services that are a benefit to the local community.

Lately, property taxes in the United States of America have become more expensive compared to property taxes that are levied in other countries, when in the past the rates were pretty much similar. In fact, in certain states, the rate of property taxation has risen to more than five percent and has become the main payment to be concerned about after the construction of a building or some such real estate, as those who will own or rent spaces there will henceforth have to pay that inflated tax. Of course, this particular tax did not inflate for no reason whatsoever: the way things are going in America today, the States and other local governments of the country have to now find ways to support their own infrastructures (which includes not only the schools, but also basic benefits like public security, health care, and structures like roads and bridges). The federal government has the benefit of falling back on personal income taxation. (To be continued in next article)

First and foremost, it has to be understood that each state government that governs the state that make up the United states of America has the complete authority to charge taxes on their citizens and any activities they deem taxable. This supposed complete authority – at least, the term “complete authority” – describing the powers of taxation that each state government is entitled to have is rather confusing however, considering that the authority each state has is limited by two major factors: geography, meaning of course that their powers of taxation will only be valid within their territory, and federal law, which means that the tax laws must in no way negate the tax laws of the federal government nor take on a power that is supposed to be that of the federal government’s alone. A good example of this concerned laws that affected trading or commerce between different states. Another example of the limitations of state taxation would be the prohibition from levying taxes that are based on the color of one’s skin, one’s gender, one’s faith, one’s original nationality or the status of one’s citizenship. This also means that a person’ right to vote (for a President, Vice-President, Senator or Representative in Congress) is not curtailed by his or her inability to pay his or her taxes.

Local governments have far more limited powers of taxation, and mostly their revenue is generated through real estate – that is to say, value-based property taxes. Of course, these particular taxes are supplemented by things such as sales taxes and use taxes.

To clarify once more, sales taxes are taxes that are levied on certain goods and services which are paid for immediately. That is to say, on top of the actual fee of the product or service, you also have to pay for the tax at the point of purchase. Sales taxes are imposed by most of the American states, counties and municipals (this shall be discussed more thoroughly later). Use taxes, on the other hand, is an excise tax which is imposed upon certain tangible personal property which, while in any other situation may be tax free, is bought for use, consumption or storage of goods in the state – and the actual place where the act of purchase was indulged in does not at all matter. That is to say, the most common example of things that are levied with a use tax are the purchases made during travel that require special courier services, mail order purchases or items bought online. The use tax is a United States tax, and the rates are similar to that of the sales tax – not to mention the fact that this tax is paid directly to the government that assessed this (this and the rates shall be discussed more thoroughly at another time).

That being said, there are other ways by which a state or local government generates revenue, and this includes fees for building permits (technically part of property taxation). Also, these very same fees may also include the operating costs and services of property like parks and schools. Then, there are taxes on income, fines for certain minor law violations (particularly traffic violations), gross receipts or gross payroll taxes, portion of sales taxes and the like. States impose a gas tax, or fuel tax which, while considered a kind of sales tax, although it is considered a separate tax by some because it has features that can be considered as a user fee. Practically all the states impose what we call a “sin tax” as well, which is essentially a tax on items that are considered negative by the community – the most common examples of which are tobacco products and liquor. Again, sin taxes, apart from generating the desired revenue for the area concerned, are also there to discourage certain behavior that the group as a whole finds undesirable.

All in all, the state government has the power to empower certain territories (within their own, of course) like school districts, counties and cities to impose taxes on residents. These more localized areas in turn have the ability to impose taxes as much as the state does, so long as they are within the boundaries of state law.

Needless to say, state and local taxation, while given some free reign that reflects the sensibilities of the local community, are still limited by the rules and laws of the federal tax system. There is also the very slight difference in terms of the apparent use of the revenue as, considering how much “closer to home” these governments and tax systems are, the results of taxation seem to be more obvious. That is to say, local services like the maintenance of public roads, the building and maintenance of things like community centers, parks and the like, as well as improvements with regards to services and the like the are affiliated with the local city, county or state are more readily observed than any changes that may have been generated by the revenue collected by the United States of America’s federal government. And the thing is, this may be one of the reasons why some people prefer to pay only the state and local taxes and find ways to evade the federal taxes – because, quite frankly, if you can’t see where your money goes and how you benefit from the money that you have to give up in favor of the community, it’s hard to find the motivation to actually pay. (To be continued in next article)

Corporate income tax, obviously, is a tax levied on the taxable income of a corporation. But it must be pointed out that corporate income tax in America applies only to C corporation, or any entity that has been designated as a C corporation. So it is best that before we move on with this discussion, we try and explain what a C corporation it and how it is different from any other type of corporation.

The C corporation, also known as a C corp is a legal business entity in the United States of America that is defined as one that is federally taxed according to Federal income tax laws. That is to say, most of the major companies as well as the regular companies in the United States are defined as C corporations, and are thus subject to the federal corporate income tax. The other type of corporation, the S corporation, is a legal business entity that is NOT taxed under the federal income tax laws. In order to become an S corporation (or to be eligible to be an S corporation) the said corporation must meet a number of requirements including being a domestic or limited liability company, having one hundred or less shareholders who are American citizens or residents, having only one class of stock, and having dedication to the fair allocation of profits and losses to shareholders according to their interest in the business. C corporations, on the other hand, have no limit to the number of shareholders – and it doesn’t matter if the shareholders are domestic or foreign either. Needless to say, S corporations are taxed differently compared to C corporations.

Now that that has been established, let’s get back to the subject: again, corporate income tax is essentially a tax levied on a C corporation by default according to the current internal revenue code. This is pretty much like the regular income tax levied on individual taxpayer; it falls under a marginal tax rate system – that is to say, a marginal tax rate is the basis of this tax. A marginal tax rate, in case it isn’t quite clear, is “a tax rate that applies to the last dollar of the tax base” (including the taxable income or spending), and this pretty much applies to changes in one’s obligation to tax according to the rise in income. All in all it’s like another way of saying “progressive taxation”, with a very slight difference. Of course, this marginal tax rate system is just the base of this tax – there is the possibility of other taxes being applied to the corporation based on other systems. Such taxes include the alternative minimum tax (to be discussed in more detail later) and the accumulated earnings tax. The alternative minimum tax is only levied upon the C corporation, however, if their tax under their marginal tax base is smaller than the alternative minimum tax. The accumulated earnings tax, on the other hand, is applicable to corporations that fail to pay out to shareholders (in dividends) any accumulated excess earning – this is a fifteen percent tax rate.

For reference purposes, the marginal tax rates applied to C corporations (should you be part of such an entity) are as follows: corporations that generate a taxable income worth fifty thousand dollars or less for the fiscal year are subject to a fifteen percent tax rate. Taxable income worth more than that and up to seventy-five thousand US dollars are subject to twenty-five percent tax, while seventy-five to one hundred thousand dollars worth of taxable income for a fiscal year are subjected to a thirty-four percent tax rate. One hundred thousand to three hundred and thirty-five thousand dollars are hit with a thirty-nine percent tax rate, while three hundred and thirty-five thousand to ten million dollars worth of taxable income are taxed thirty-four percent (strangely enough). Ten million to fifteen million dollars worth of taxable income has a tax rate of thirty five percent while fifteen million to eighteen million three hundred and thirty three thousand three hundred and thirty three dollars are to pay thirty eight percent tax rate; any taxable income above that is to pay thirty-five percent.

Incidentally, not all these rates have allowable deductions: only the third, fourth, sixth and seventh brackets have proper deduction values in dollars. These are the deductions, respectively: eleven thousand seven hundred and fifty dollars, sixteen thousand seven hundred and fifty dollars, one hundred thousand dollars and five hundred fifty dollars.

Another thing that should be taken note of is the fact that the tax rates referenced above do not apply to what we call “qualified personal service corporations”. So what is a qualified service corporation and what is its tax rates? Well, a qualified personal service corporation, as the name suggests, is a corporation whose activities are focused (mostly if not totally) on services that involve accounting, actuarial science, architecture, consultation, engineering, health, law, and performing arts. In order for a corporation to be classified as a qualified personal service corporation, ninety-five percent of its stock should belong (whether directly or indirectly) to the employees (retired or otherwise) who are performing (or have performed) the above-mentioned services, or to persons who inherited the stocks in the event of said employees’ passing, or to the estate of the corporations employees. Once these parameters are met, a corporation will be considered a qualified personal service corporation, and will thus be subject only to a flat tax rate of thirty-five percent.

It should also be noted that unlike the standard income tax paid out by the regular population – that is, the individual person – the corporate income tax is paid in installments, quarterly. The payments are for their EXPECTED tax liability for that year. There is also something called the “check the box system” that corporations are now allowed to engage in which the entities may choose to let all income pass though the shareholders and thus lowering the income tax rate to be paid – obviously one of the many, many loopholes that corporations can use in order to pay less to the federal government.

That being said, we have come to the conclusion of this particular discussion of taxation in the United States of America. Again, federal taxation in the US is there to generate revenue and encourage (or discourage) certain statuses and actions among the general populace of this great nation. There may be many ways to circumvent some of these levies, but the means by which they are LEGALLY circumvented, for the most part, are definitely there to ensure that in some way, we are all doing something good for someone else. It may seem to be frightening when you’re new to it, or even bothersome once you’ve been a taxpayer for years. You may feel like all you’ve been paying for is not even going anywhere it should be going, or you may feel like you’d rather spend your money on something else. But what this all comes down to is that taxation – especially FEDERAL taxation, whose positive effects are not so readily apparent – is way more than just about the money that you give to the government, and if you like to be positive, it is more than just an obligation to the country you call home. It’s a social exercise, and, as with most social exercises, it is subject to evolution when it comes into contact with its elements.

While it may not seem like it, taxation gives the people power, if we only knew how to use it.