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The U.S. Tax System is very complex at all its levels: federal, state, and local. Depending upon where in the U.S. you live, you may have tax liabilities to all three, or just to one or two of the above. It is your responsibility to know and follow all applicable laws, paying all levied taxes of which you are liable.

Federal taxes are the most complex. The Internal Revenue Code is quite enormous. filled with difficult-to-read legalese, and vastly complicated. The first income tax return for the U.S. was the 1913 Income Tax Return. It was a simple, one-page document. Now, a tax return can be so complicated as to have hundreds of pages attached. How, then, does a citizen understand its federal obligations?

For the average citizen of the U.S., many seek the assistance of tax professionals in completing their return. Others use services such as VITA, and other tax-assistance services. Others go directly to the IRS Service Centers nearby and have them complete their returns. (That's scary.) Still other brave souls attempt to do their taxes themselves.

Whichever option you choose, you should understand at least the basics of the federal tax system. At its most basic element, the federal tax system levies taxes to ensure that the federal government has funds to operate on. These funds provide many services to its citizens, including, but not limited to, transportation, defense, and health and humanities services.

The federal government, through its arm labeled the "IRS", levies and collects these taxes from its citizens. It is then, theoretically, responsible to use these funds to provide the needed services to all its citizens.

Many taxes make up the federal tax system. These include individual income tax, corporate and business taxes, employment taxes, social security and medicare taxes, heavy vehicle use taxes, excise taxes, and other tariffs and import taxes. All of these together are utilized in providing the services to U.S. citizens that we have come to enjoy and appreciate.

Every U.S. citizen is expected to pay his fair share of taxes, however the tax burden applies to him. If he is a business-owner, he may have to pay business corporate taxes, employment taxes, and social security and medicare taxes. If he works for another employer, he may only be liable for employment and social security and medicare taxes.

Built into the complex tax system are a series of credits and deductions allowed to every taxpayer for individual income tax and corporate tax purposes. It is highly recommended that every taxpayer understand the basics of individual income tax law and/or corporate law, or consult a tax professional, so that these key deductions and credits are not missed when preparing your tax returns.

State tax obligations vary widely. Some states in the United States do not have an income tax requirement, but may have other tax obligations. Some states have a variety of tax obligations for its citizens. Each citizen must be responsible to find out their liability for their particular state.

Common state tax liabilities may include such items as individual income tax, state sales tax, vehicle taxes, property taxes, and ad valorem taxes. Some states have all, while some states may only have one or two.

Some localities also impose tax liabilities on citizens. These may be in the form of property taxes, sales taxes, and, in some cases, income taxes.

Find out about any local obligations you may have based upon your domicile in that locality, or your business location in that locality. Sometimes, even if your business is not located within that locality, but you do business within it, you may be required to have a business license or pay other tax obligations.

Most income tax liabilities requirements operate similarly, whether at the federal, state, or local level. Generally speaking, you will figure your reportable income, less any deductions or credits allowed, and based the tax percentage on that amount, plus any additional taxes that may be imposed in your particular situation.

For sales taxes, usually these are based upon the gross amount of sales for the business during a particular time. Vehicle use taxes generally are based upon the type and weight of the vehicle using the roadways, as well as number of miles of use. Property taxes are generally based upon an assessed value of the property in question.

Employment taxes and social security and medicare taxes are generally based upon the gross amount of wages, less any pre-tax qualified deductions. Other voluntary withholdings and deductions can then be subtracted from the wages, arriving at the net paycheck for the employee.

Employment taxes, including social security and medicare taxes, are what's termed "trust fund" monies. This means that the employer is liable to report and pay them immediately when they are due. They actually belong to the government the moment they are withheld, although the federal and state governments may allow the employer a few days or weeks before they are required to be deposited. But, when they are due to be paid, they must be paid, or the employer can incur steep penalties.

Although at the various levels in our country any one taxpayer may have multiple tax obligations, we must also realize that these taxes do provide much of our comfort and benefits which we treasure and take for granted every day. When was the last time we thought about how much we enjoy having our interstates or local paved roadways to travel upon? Or how about thanking God for our Coast Guard and our military who are daily seeing to our protection?

These are just a few reasons why, although not perfect and in need of much repair, our tax system does have its advantages. We enjoy many of those every day of our lives. With all its faults, our country and its tax system still represents the greatest nation on the face of the earth, and we can be proud to be called "Americans".

Business > Nonprofits Tax issues for nonprofits

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The number of nonprofit organizations has grown significantly over the last few decades.  Nonprofits offer a variety of services and can accomplish much good in society.  The U.S. government grants certain tax breaks to nonprofits not applicable to other businesses or individuals. First of all, once a nonprofit is formed within their state and has obtained a new Federal Employer Identification Number, they must apply to the Internal Revenue Service, in order to obtain special tax code status, such as 501(c)3 status.  The form required to make such requests with the IRS is ei...

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