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US Taxing System

The US taxing system is how the United States taxes the income of the individuals and businesses that earn income in the United States. Within the taxing system there are several types of deductions that an individual may take or that a business may take, these are not necessarily the same type of deductions and one deduction may only be good for a business and not for an individual. The laws within the US taxing system change frequently, almost yearly, so what may have been for an individual or business last year may not be the same this year. This alone can make a person have questions and be confused where to find the answers. Below are questions regarding the US tax system that people have asked the Experts.

What is the Alternative Minimum Tax?

The Alternative Minimum Tax is basically another tax system that corresponds with the regular US tax system. Any individual, when preparing their taxes, is able to do an Alternative Minimum Tax return, but if that individual did, they would not have the ability to make tax deductions. However when an individual does their taxes they start from the ground and work their way up, this is not how the Alternative Minimum Tax system works. The Alternative Minimum Tax system starts with the regular federal taxable income that would be used in the regular tax system, and then makes several adjustments to come to the Alternative Minimum Tax taxable income.

In what ways is the alternative minimum tax different than the regular tax system?

Alternative Minimum Tax was created by Congress which was targeted for those whose income is higher but so are the deductions that can be claimed, making it that little to no income tax would be owed. In the regular US taxing system these individuals would pay little to no taxes. The Alternative Minimum Tax also is not adjusted for inflation, so those taxpayers that are middle-income may be subjected. An individual may also find that they have to pay Alternative Minimum Tax if their taxable income in the regular taxing system in addition to their adjustments is more than the Alternative Minimum Tax exemption amounts.

Why is there the Alternative Minimum Tax System in addition to the regular US Taxing System?

The Alternative Minimum Tax System was put into effect in addition to the regular Taxing System as an attempt to make sure that those taxpayers that are able to take so many deductions that they pay little to no tax have to pay at least a minimum amount of taxes. The way that the Alternative Minimum Tax System is figured takes away a good number of the tax deductions and credits and therefore increases the individual who might normally pay very little taxes, tax liability. It is by law that the minimum tax rates are set on ordinary income.

Since the income tax system says that income taxes are voluntary, does an individual not have to pay income taxes if they do not want to?

Even though the income tax system is voluntary, voluntary does not mean that an individual can decide to not pay their income taxes, this would be tax evasion. The way that the income tax system uses the word voluntary is that individuals voluntarily send in their own returns. The authority that is granted to the IRS and the states, give them to powers that they need to enforce that individuals comply with the law. For example the W-4 is used as a tool to advise employers what taxes need to be withheld from wages of their employees. Likewise the W-2 gives the employees what they need to voluntarily file their taxes, keep in mind that the W-2 information is also sent in to the IRS and states, so if a person does not file their income taxes in the US tax system, the IRS and states already know how much income the person had for the year. An incentive for voluntarily filing an income tax return is the possibility of receiving an income tax refund. It should also be noted that just because an individual is unaware of the tax system rules does not make it ok to not file their income taxes, and penalties and interest may be assessed if an individual does not file their income taxes in the time frame that is laid out for them in the tax laws.

Within the US tax system there are two types of systems, the Regular Taxing System and the Alternative Minimum Taxing System. The use of the word voluntary pertains to the ability of an individual to voluntarily send in their own tax returns. Any questions about the US tax system can be asked to the Experts.

Ask a Tax Professional

Wallstreet Esq.
Wallstreet Esq., Tax Attorney
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Experience:  10 years experience
16356563
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Recent Taxing System Questions

  • My former employer has offered me a lump sum payout of $46K

    My former employer has offered me a lump sum payout of $46K for my retirement pension.
    I am 58 years old. I have no dependents and no spouse.
    I also am currently severely "under-water" with my house mortgage. I owe $42K but a recent appraisal showed a value of only $19K. I need to get out from under the mortgage because it balloons in May, 2015.
    Would it be advisable to use the lump sum to pay down my mortgage to the $19K threshold then refinance the balance?
  • I've lived with my elderly parents for several years. i'd

    I've lived with my elderly parents for several years. i'd been minimally employed after my divorce but got a full-time job about 18 months ago. I've helped out my parents for a long time but never knew i could claim them, at least my mother, as a dependent bec i thought dependents were children only. Now, I'm not sure if i should proceed with claiming my mom or both of them because i don't have proof really, with the exception of my mother's phone bill. i've written several checks for a few hundred here and there to them, but largely always give them cash so that they don't have to go to the bank. my mother only gets a bit over $400/ month in social security and my father gets $1100. His medication alone is $500. He pays for the meds himself. My father has 100k in savings in a joint account with him and my brother.
    i think i should get credit for buying all the groceries and giving her money for clothes and things for the house, and toward the mortgage. My salary in the beginning of the year was 50k, until i was promoted in April and became $55k. I recently started a new job in Sept and now it is $65k.
    My brother who lives away from us said i shouldn't claim them because since i have never claimed a dependent at 33 yrs old, it would 'raise a red flag' to do so now for the first time. AND since i don't have any receipts or definitive proof i did buy them things, i could then be grilled/audited/ and possibly worse. Can this be?
    I have tons of ATM withdrawals, some checks to mom and dad, tons of credit card and debit card purchases for groceries and clothing stores or dept stores. but technically i could see how this might not suffice. had i know i would have saved every single receipt for every single purchase no matter how small. Perhaps i can start that in the new coming year. but for now, i just want to know if i should continue to claim them or if this will bring out a lot of drama or stress with an IRS investigation.
  • Got an letter from IRS regarding the late tax filing penalty

    Got an letter from IRS regarding the late tax filing penalty on a S corporation.
    The company has stopped operating due to loss. But no proper shutdown/closure was arranged via final filing etc. The penalty is $195 per month per share holder. Does the
    share holder personally owes IRS the money? What is the appropriate way to handle this?
    If the shareholder of the company is not personally responsible, the company has no asset to pay for any penalty.
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