| Income tax is a charge on one's income that is | | | | market may be deducted against income earned |
| paid to the government. Most countries around | | | | from a business or profession. |
| the world today are governed by democratically | | | | Income tax was first introduced in Britain by |
| elected governments. These governments need | | | | William Pitt, in his budget presented in 1798. The |
| revenue to finance the costs that they incur to | | | | tax was levied to pay for weapons and |
| run their countries. A large part of this revenue | | | | equipment, which were being prepared for the |
| comes from collecting income tax. | | | | Napoleonic war. In the United States, income tax |
| Income tax is normally charged as a percentage | | | | was levied for the first time during the Civil War. |
| of the income earned. The percentage of the tax | | | | In the U.S., federal income tax is levied on |
| may vary depending upon the different types of | | | | individuals as well as corporations. Tax may be |
| incomes. In some cases, there may be no tax at | | | | levied by individual states as well, and in some |
| all. The tax rate may be progressive or flat. With | | | | cases, states allow individual cities to impose an |
| a progressive tax rate, taxes are payable | | | | additional income tax. However, all states do not |
| differentially based on how much income has been | | | | levy the same type of income tax. In the states |
| earned by a person. On the other hand, a flat tax | | | | of Alaska and Florida, there is no tax on individuals |
| rate treats all incomes the same. An income tax | | | | but there is a state corporate income tax; and in |
| system may allow losses from one type of | | | | Nevada and New Hampshire, there is no tax on |
| income to be deducted against profits or gains | | | | interest and dividends. |
| from another. For example, a loss on the stock | | | | |