Chapter 7 Federal Income Tax

Our Tax System Types of Taxes Progressive taxes Regressive taxes Proportional taxes Components of the Tax System The IRS Congress Fair Share IRS Audit

Types of Taxes Progressive taxes Share of income grows as amount of income grows Federal income taxes Tax brackets

Types of Taxes Regressive taxes Share of income reduces as amount of income grows Sales tax

Types of Taxes Proportional taxes (Flat taxes) Rate stays the same Property taxes

Components of the Tax System The IRS Collects taxes and enforce tax laws Assists taxpayers in finding information Provides tax information and instruction booklets to schools and colleges

Components of the Tax System Congress Has the power to levy taxes House and Senate must pass before President signs into law Fair Share Graduated income tax system (tax brackets)tax brackets Income increase = tax rate increase

Components of the Tax System Fair Share (con’t) Voluntary compliance Citizens are expected to prepare and file income tax returns Tax Evasion vs Tax Avoidance Tax evasion – Willful failure to pay taxes Tax avoidance – Legal process to reduce tax liability

Components of the Tax System IRS Audit Examination of tax returns Maintain tax records Office audit Meet with auditor to answer questions and produce records

Components of the Tax System IRS Audit (con’t) Correspondence audit Usually done through mail Field audit IRS agent visits taxpayer