Tax Laws & Regulations
Understanding Tax Laws & Regulations
How do tax laws affect the economy?
There are debates on the value of higher or lower taxes, and various U.S. presidents have shaped tax policy in ways that benefit different types of individual taxpayers, as well as corporations. Disagreement continues on whether higher tax rates result in more revenue.
What makes Delaware a tax shelter?
There is no sales tax in Delaware, and Delaware corporations–whether located in the state or not–benefit from a huge list of other tax breaks. There is no sales tax, no tax for in-state purchases, no state corporate income tax on goods and services, no corporate tax on interest or other investment income, no personal property tax. There are also no value-added taxes (VATs), no tax on business transactions, and no use, inventory or unitary tax. There is no inheritance tax in Delaware, and there are no capital shares or stock transfer taxes.
Do nonprofit organizations have to pay taxes?
Nonprofit organizations are exempt from federal income tax, property tax, and sales tax. They do have to pay payroll taxes (to fund Social Security and Medicare). Those engaged in activities unrelated to their charitable purposes may need to pay income taxes on those activities. And they have to file tax returns.
How does tax withholding affect taxpayers?
It ensures that taxes are paid with no end-of-year shortfall and can provide a refund that recipients like, but that actually represents an interest-free loan to the government. It also ensures a regular flow of income to governments that funds ongoing operations and limits tax evasion.
Do tariffs protect domestic businesses?
Tariffs, which tax imports, can protect domestic businesses by making foreign goods cost more than similar ones manufactured by domestic companies. On the other hand, they can damage other domestic businesses by increasing the costs of imported components or raw materials that these companies need to manufacture their products.
How does a government that’s a tax haven make money?
Tax havens have other ways than charging taxes to raise funds. These include imposing custom and import duties; charging fees for corporate registration and registration renewals to companies that register their businesses in the tax haven; and taxing tourists through departure taxes, especially if the haven is a vacation destination, such as Barbados.
Goods and Services Tax (GST)
This indirect federal sales tax–called a value-added tax (VAT) in some countries–is charged on certain goods and services. The sales price to the customer includes the GST, and the business or seller forwards the tax payment to the government. The GST rate usually is uniform throughout the nation charging it.
Double taxation is when taxes are charged twice on the same source of income. For example, a corporation pays taxes on its earnings and then individual stockholders pay income tax on dividends from those same earnings. International businesses may also be taxed once on income earned abroad and then again on that same income when it’s repatriated to their home country.
Value-Added Tax (VAT)
This consumption tax on goods and services is charged at each stage of the supply chain–wherever value is added. The user pays based on the cost of the product minus any materials that were already taxed at a previous stage.
A regressive tax is one that is applied uniformly to all taxpayers, regardless of income. It’s called regressive because it affects low-income people more severely–costing a higher percentage of their income—than affluent ones. Some examples: sales tax, user fees, some property taxes.
Generation-Skipping Transfer Tax (GSTT)
This 40% federal tax ensures that wealthy individuals can’t avoid taxes when property is transferred by gift or inheritance to a non-spouse at least 37½ years younger than the person making the gift or bequest. To be subject to the GSTT the gift or bequest must be very large: The 2022 threshold was $12.06 million.
When should a foreigner residing in a country be considered a “tax resident,” subject to taxation for that year? The “substantial presence test,” as they call the rule for deciding this in the U.S. is 183 days. Canada, Australia and the U.K. also use this time period, while in Switzerland it only takes 90 days to be a tax resident.
This law means that parents can’t avoid paying taxes on investment gains by transferring large gifts of stock to their children. This tax applies to investment and unearned income of all kids 18 or younger and dependent full-time students ages 19-24. After meeting a threshold, all unearned income is taxed at the parent’s marginal tax rate rather than at the child’s rate.