Personal Income Tax Returns

Personal Income Tax Returns

Personal income tax, as we know it today, was originally enacted by Congressional law during the ratification of the sixteenth Amendment in 1913. Although we have experienced many changes to the system since that point in time, the importance of the individual income tax to the Federal Government's revenue as remained a constant. Today, half of the government's revenue is generated from the assessment of personal income tax due, and mounts into the trillions of dollars each year.
Some of the more significant changes to our tax law are discussed below and might surprise today's taxpayer, simply because our knowledge of the tax system is far removed from some of the earliest requirements, inclusions, and exclusions.
For instance, federal government employees were taxed on their income, but state and local government employees were exempted. Also exempt from the income tax levy was interest income from government bonds, federal, state and local. The exemption for single persons was $3000, and for married individuals it was $4000. Not much has changed, even though inflation has created major changes in our income levels, the exemption rates haven't changed in direct correlation.
Another important concept that has experienced much change over the years is the use of "personal income" in some tax liability instances, versus the use of adjusted gross income in some other instances. There are great differences in these figures, if you make use of the many deductions and exemptions that are currently a part of the individual income tax form, the 1040. Now, here's another important difference: during the tax systems inception, there was only one form used by all taxpayers, even business owners. Today, there are 3 different forms just for the individual tax payer's filing status. If you're a business owner, or if you own investment property, there are also many additional schedules for which you must separate your income away from the basic 1040 wages, salaries, and tips. This has been in an effort to encourage the small business ownership in American to expand.
Capital gains, of course have always received preferential treatment, but for many years they weren't taxed at all. It would seem the unfair exclusion of the wealthy individuals ability to invest and realize a profit, was in existence even then.
Many of the concepts we take for granted with our tax system today, weren't introduced all that many years ago. Tax tables, medical expense deductions, standard deductions, the definition of taxable income were established until the 1940s; earned income credit, alternative minimum tax, mortgage interest, and investment interest tax weren't addressed until the 1970s; unemployment compensation and social security benefits weren't taxed until the 1980s, and state sales tax and personal interest were excluded as deductions during the late 080s.
As you can see the United States tax system, along with the personal income tax return are fairly young institutions, and at times, still seem to be undergoing many changes, often at a pace much faster than the individual taxpayer can accommodate. The changes that often occur, to benefit a taxpayer aren't even general knowledge until it is too late to take advantage of the opportunity.
It's through the use of a professional tax preparer and excellent communication that an individual tax payer will see the greatest benefit of the tax codes and regulations. hanks to the complexity of the United States tax codes, the system itself, and the variations of tax codes from state to state, completing your personal tax return and maximizing your deductions, exemptions, and credits to their fullest potential, is like trying to complete a mind-twisting maze. The average individual required to file a personal tax return has no grasp of the US tax system, and must therefore rely on one of the many tax professionals to complete their return. Quite often, these deductions, exemptions, and credits are overlooked simply because of a lack of communication. available to the individual tax payer, in addition to the fact that qualifying for many of these benefits must be communicated to the tax preparer.