Progressive Tax Case Study

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The United States makes use of the progressive tax system, which translates to different portions of one 's income, being taxed at rates, which are different. In general terms, people who have taxable incomes that are higher pay overall tax rates, which are higher. The real manifestation of this system is the tax brackets because they reflect the amount an individual has to reimburse in several levels of income. Because rates and tax brackets occasionally change, people should take the initiative of checking to confirm whether they are making use of individual tables as they file their taxes. Annually, the IRS changes 40 tax provisions for inflation or more. The IRS does this to avoid a scenario referred to as a bracket creep; this is a situation …show more content…

Another issue that it depends on is the percentage, which is associated with an individual 's tax bracket because it is not similar to a person 's effective or average tax rate. Additionally, the percentage which is linked to a person 's tax bracket is their marginal tax rate. It is also worth to note that selling stock at a benefit may shift a person to a tax bracket which is higher, despite the fact that their earned income may remain to be the same. Another issue to consider is that a person may have the ability to shift to a tax bracket which is lower, by selling stock, which is held at a loss in regular accounts, contributing to charity initiatives and adding to an investment account which is tax-deferred such as an IRA and 401 …show more content…

An example is if in a particular year an individual or a company has generated a lot of profits and it was not spent in purchasing equipment required by the business then the taxable income will be higher. Therefore, this means one will skip to the next tax bracket where taxes are higher compared to the previous tax bracket. Another example is if in one’s self-employed business one had a bad year and still went on to buy equipment required by the firm. The subsequent year the corporation is expected to make a lot of profit; this will get one in a higher tax bracket because the income would have increased from the previous year and possibly skipped to the next tax bracket.
c. Not making contributions in high-income years and not paying deductible

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