Income taxes are taxes governments levy on money earned by businesses and individuals. What's more, they're also many countries' largest source of revenue: In the US, individual income taxes made up nearly half of the federal government's revenue in 2024, while corporate income taxes added another 11%.
Hours of research by our editors, distilled into minutes of clarity.
Americans have long resisted income taxes. So, how did they become permanent? This overview explains how wartime funding needs, constitutional changes, and economic shifts gave rise to the modern tax system, from the Civil War to the payroll withholding rules we follow today.
A tax deductible is an expense that a taxpayer or business can subtract from adjusted gross income, reducing their taxable income and therefore reducing the amount of taxes owed. Governments often use tax deductibles as a way to reward people who do things that are considered beneficial to society, like charitable donations.
The US's highest marginal income tax rate is 37%. That rate is compared to other countries' both in a map and accompanying chart. Denmark has the highest rate at nearly 56%, while a handful of countries don't use marginal taxes at all. In the Middle East, many countries count on oil and gas to finance their governments.
The IRS arrested top mob bosses during Prohibition after the Supreme Court ruled illegally-made income could be taxed. The IRS's biggest catch was Al Capone, who was charged with tax evasion and sentenced to 11 years in prison. But Capone wasn't the only bootlegger the IRS nabbed for tax evasion during this era.
While wages and salaries are taxed progressively at rates up to 37%, long-term investments are taxed at lower rates: 0%, 15%, or 20%. For wealthy individuals like Buffett, whose income mainly comes from investments, this means paying a lower effective tax rate than someone earning a salary.
Tax avoidance isn't the same as tax evasion. The tax code is full of legal loopholes accountants can use to lighten their clients' tax burden. For instance, large estates can be counted as farms and some cars count as heavy machinery.
The US has a series of tax brackets which grow progressively larger based on the amount of income a taxpayer makes. Contrary to common belief, most people don't pay just one tax bracket, but all of them progressively until they reach their income.
There are five different filing statuses taxpayers fall under when they file income taxes: single, married and filing jointly, married and filing separately, head of household, and surviving spouse. Taxpayers' status is determined by whichever category they fit into on December 31st of the tax year they're filing for.
Past presidents' changes to tax codes have inflated the deficit. An expert on the topic explains the interplay between policy and the national budget while debunking 10 tax-related myths in this podcast.
The US government historically makes nearly half of its total revenue last year from individual income taxes. But the US makes also makes money from a variety of other sources, including Medicare taxes and corporate income taxes. However, the federal government has run a deficit since 2001—reaching a peak of $3.13T in 2020.
The United States is home to more than 33 million businesses, the vast majority of which are small businesses, with millions being created (and others closing shop) every year. These businesses often rely on loans, provide the goods and services that keep the economy flowing, and sometimes even grow large enough to enter public markets or provide private investment opportunities. Explore key topics central to business and finance, from the role of the Federal Reserve to how initial public offerings work, how millions of American students finance higher education, and more.