Uncommon Tax Terms You Need To Know
The reason why many people find taxation procedures and laws to be difficult is not
because the concepts are hard, but it is because they do not understand many of the related terms and phrases. For you to learn more about taxation and how to avoid fines and penalties while at the same time minimizing your tax liability, you must be willing to learn the basic terms. Here are some of them:
Withholding Tax
This is the tax that is usually deducted at source. The person who hands over the money to the government is not the same person who will bear the burden of taxation. This is used in many systems since it helps reduce the cost of collection of taxes. For example, if you sell services to a large organization, it is much easier and more practical for the government to ask for the money from the buyer, than for the government to go to each and every person who has served the company asking for the same. The buyer in this case has acted as an agent of the government when it comes to collecting withholding taxes.
Tax Threshold
This is the income amount below which one is not taxed. In some cases, the government may choose to state this directly such that you will only be taxed if your income is above a certain amount in a year, say $10,000. Alternatively, the government can also arrive at this figure indirectly by offering tax relief. Here, you will calculate your liability for any amount more than zero. Once it has been calculated, the relief will be deducted from the liability, to the extent that it does not go below zero.
For example, if you are earning $15,000 and the tax rate is 10% for the first $15,000, you will be required to pay $1,500 as taxes. However, if the government declares that it is offering relief of $1,500, you will not be required to pay anything. This way, the $15,000 becomes the threshold by default.
A Tax Clearance Certificate
This is an official document that indicates that a particular person has met all his or her tax obligations. Depending on the country that you are in, this clearance certificate may enable you to get government tenders, apply for a passport, or run for an elective office.
Payroll Tax
This is the amount of tax that a person who is employed will pay to the government, through his or her employer. In fact, the employee does not even "see" this money. It is deducted by the employer and forwarded by the government by a certain date.
These four terms that are listed here do not form a size-able percentage of tax terms. However, they provide an excellent platform for learning more about related laws and facts.
by: David de Souza
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