Taxes
The U.S. tax system funds federal, state, and local governments through income taxes, payroll taxes, sales taxes, property taxes, and tariffs. Individual income taxes comprise the largest share of federal revenue at about 49%, followed by payroll taxes at 35% that fund Social Security and Medicare.
How Taxes Fund Government
Taxes provide revenue for essential services like defense, highways, police, and social programs. The IRS collects income taxes and processes returns. The IRS enforces tax laws and issues refunds. Corporate income taxes and excise taxes contribute smaller portions.
Understanding Tax Rates
Federal income taxes are progressive, with higher earners paying higher rates. Distinguish marginal from effective tax rates. Progressive systems apply to ordinary income, while capital gains face different rules.
Income and Deductions
Freelancers report self-employment income and pay estimated taxes. Deductions like mortgage interest and charitable contributions reduce taxable income. Credits directly lower liability.
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