Taxes are ranked as one of the most confusing necessities of life. Almost 50 percent of taxpaying adults do not even know what tax bracket they are in.
Building your knowledge around taxes is critical for any adult. But it is crucial if you want to maximize your income and earnings and build wealth.
Many people end up overpaying in taxes. If you know how to make taxes work for you, you can end up paying only what you absolutely have to.
Here is your complete guide on everything you need to know about the major differences in corporate tax versus personal income tax.
What is Personal Income Tax?
A personal tax is what an individual owes to the government based on how much they earn each month or year. Individuals must pay the federal income tax on top of any personal income tax rates their state imposes.
Whether you are a business owner or an employee working for someone else, you must pay a personal income tax.
However, tax brackets can be somewhat complex. If you make $39,000 a year, your tax rate is 12 percent. If you get a raise and start making $45,000, you are taxed at 12 percent of everything up until $40,125. The remaining $4,000 and change will be taxed at your new bracket rate of 22 percent.
What is Corporate Tax?
A corporate tax is a tax on the earnings of a business within a specified jurisdiction.
The corporate tax rate can vary from state to state, country to country, and even from president to president. Currently, the federal corporate tax rate is 21 percent. States can also impose corporate taxes, but these can vary.
For example, Arizona has a corporate tax of 4.9 percent, while California has a corporate tax rate of 8.84 percent.
How Do You Know Which Tax You Have to Pay?
Now you know what the major difference is between personal income tax and corporate tax. But what happens if you own your own business and you pay yourself? How do you know what tax you have to pay?
By partnering with tax professionals, they can build out a complete tax strategy for you. Having a tax strategy can help you to increase your wealth over time.
Partnering with tax strategists like WealthAbility can put you on the path to success. Visit their website https://wealthability.com/tax-strategy/ to learn more.
Want to Know More About Different Types of Business Tax?
As complicated as taxes seem to be, they are inevitable. You cannot get out of paying taxes. However, you can build a solid tax strategy plan to help you optimize the amount of taxes you are paying.
A good place to start is by understanding the difference between personal income tax and corporate tax.
If you still want to learn more about tax brackets, direct taxes, and more, be sure to follow along for more articles on finance and business topics.