January 19, 2021

Governments require money as a way to operate which is why income taxes were put into place and are generally based off the amount of money an individual earns in a year. Most money that is received is subject to being taxed such as salary, interest, dividends, rents, royalties, lottery winnings, unemployment compensation and the earnings from a business you own.

Where does income tax come from?

Income tax is typically paid for by workers and people with income. Corporations, trusts, estates and many other types of entities also pay income tax on the profits they receive.

Many states also impose a similar form of taxation on individuals and entities that have a significant connection to the state. As of 2020, there are several states that don’t charge income tax. For those living in Alaska, Florida, Nevada, South Dakota, Texas, Washington or Wyoming, you are most likely responsible only for federal income tax.

Voluntary reporting of income tax

The U.S. income tax system is a voluntary system. Although it is a voluntary system it does not mean that paying your taxes is optional. The federal government relies on taxpayers to voluntarily report all income that is earned on their tax return and calculate the appropriate tax using the current tax laws.

The IRS has ways to ensure that income taxes are paid and receives copies of taxpayer’s W-2 every year should a taxpayer not file their taxes. The IRS can also calculate your taxes and send you a bill based off the tax forms the IRS has received. Additionally, the IRS charge interest and penalties against those who owe a tax balance.

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.