Types of Income Tax - Planet Finance Blog

As we all know, income taxes are taxes levied on the money we make each year, whether through personal financial endeavors, businesses, or other legal entities.

But today we?re here to learn more about income taxes, so that we can better understand our tax returns and also better understand possible alternative systems. After all, when it comes time to vote on your representatives or policy-makers, you want someone who supports the income tax that you think is most fair!

First, let?s review the types of income tax. Income taxes can either be progressive, proportional, or regressive. These three terms relate to how the tax rate changes depending on the income level of the individual concerned.

With progressive income tax, which is a common form of income tax, the higher your income, the greater percentage of it you will pay in taxes. So, for example, if I make six figures a year, I might pay 40% income tax, but if I only make $20,000 a year, I might pay 15% income tax.

Also, income taxes for companies are often called corporate taxes, and they?re usually calculated differently. For example, most corporate taxes allow exemptions that make the taxable income equal to the net income of the company, which means that all expenses and other write-offs are not included in the taxable income.

Personal income tax usually accounts for a person?s entire income, though it still allows for some exemptions, such as for the number of children being supported.

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