Understanding Income Taxes

What is income tax?

• A one-time tax collected at the purchase of goods

• A tax only on imported goods

• A type of tax governments impose on income generated by businesses and individuals

• A tax on business profits only

What do income taxes fund?

• Public services, government obligations, and goods for citizens

• Only military expenditures

• International debt repayment only

• Only healthcare services

Which entities levy income taxes?

• Both federal government and many states, as well as local jurisdictions

• Local jurisdictions only

• Non-profit organizations

• Federal government only

What is personal income tax levied on?

• Only on business income

• An individual's wages, salaries, and other types of income

• Only on inheritance

• Only on sales of property

How is taxable income determined?

• Total income minus standard deduction

• Adjusted gross income minus any itemized deductions or standard deduction

• Gross income only

• Total income without deductions

Which states do not collect personal income taxes?

• California, New York, and Florida

• Alaska, Texas, and Nevada

• Only Alaska

• All states collect personal income taxes

What is a progressive income tax system?

• A system where everyone pays the same tax rate

• A system where higher-income earners pay a higher tax rate

• A tax system that only applies to corporations

• A system where lower-income earners pay a higher tax rate

What can tax credits do?

• Increase your taxable income

• Are only available for businesses

• Eliminate the need to file taxes

• Reduce your tax obligation

What was the purpose of the first income tax in the United States?

• To fund healthcare

• To reduce national debt

• To help finance the Civil War

• To fund public education

What does the IRS do?

• Only audits large corporations

• Collects taxes and enforces tax law in the United States

• Provides loans to small businesses

• Manages state income taxes