What is a Taxpayer?
A taxpayer may be an individual or business entity obligated to pay taxes to a federal, state, or local government. Taxes from both individuals and businesses are a primary revenue source for governments. In the United States, individual taxpayers are usually required to file and pay federal and state tax returns annually. Businesses must also file annual returns and typically plan for and pay regular estimated tax payments throughout the year.
Key Takeaways
- A taxpayer can be either an individual or a business entity obligated to pay taxes at various governmental levels.
- Taxes from individuals and businesses are essential revenue streams for governments.
- Individuals and businesses each have different annual income tax obligations.
Understanding Taxpayers
Tax laws in the U.S. are legislated and enforced by federal, state, and local governments. The Internal Revenue Service (IRS) is the primary agency overseeing the implemented income tax code for both individuals and businesses. State and local revenue agencies enforce localized taxes such as sales and property taxes. Nonpayment of necessary taxes can lead to penalties and legal actions.
Types of Taxpayers
Individuals
Specific thresholds govern the obligation to pay annual individual income taxes to the IRS and state revenue departments. Thresholds vary based on an individual’s filing status, and state thresholds differ as well. It’s important for individuals to maintain accurate filing statuses with their employer to avoid discrepancies at tax-filing time.
Factors such as marriage and dependents significantly influence individual tax obligations. Married individuals can choose to file separately or jointly, and widowers have specific filing options. Beyond income taxes, individuals encounter sales and property taxes in everyday life, which vary by location.
Filing Thresholds
Not all individuals in the U.S. are obligated to file federal and state tax returns. Filing thresholds depend on filing status and income levels. It’s beneficial for individuals, even those below thresholds, to file returns to potentially gain refunds through applicable deductions and credits. Obtaining a social security number is essential for tax filing, regardless of age.
Single Taxpayer
A taxpayer is considered single if unmarried, divorced, a registered domestic partner, or legally separated according to state law by the last day of the tax year.
Head of Household
A head of household is a single or unmarried taxpayer who pays at least 50% of household maintenance costs and supports qualifying family members for more than half of the year.
Married Filing Jointly
This status allows married couples to file one tax return together. It’s often advantageous if there is significant income disparity between spouses, potentially resulting in a bigger tax refund or lower tax liability.
Married Filing Separately
Opting to file separately allows married taxpayers to report incomes, deductions, and credits separately. This choice might be beneficial when combining incomes results in a higher tax bracket, or if one spouse has substantial medical expenses or itemized deductions.
Widower
Widows and widowers with dependents have a specific filing status available for two years following a spouse’s death. Individuals may file as single, head of household, married filing jointly, married filing separately, or widower.
Individual Tax Rates and Standard Deductions
Individual taxpayers subject to federal taxes must adhere to specified tax rates and standard deductions based on their filing status each year.
Form 1040
The 1040 tax form is user-friendly for individual taxpayers with straightforward returns. While simplified, many taxpayers must attach relevant forms or schedules depending on their unique situations.
Self-Employed and Sole Proprietors
Self-employed or sole proprietor taxpayers might need to file a Schedule C with their 1040. This form acts as an income statement, covering 1099 income. These individuals often qualify for business deductions.
Small Entities: Partnerships and LLCs
Partnerships and limited liability companies generally file Form 1065 with K-1 reports, passing taxable income or losses to individual owners. These must then be reported on 1040 Forms, subject to individual tax rates.
Taxes for Corporations
Corporations make regular estimated tax payments throughout the year, reconciled with annual filings. Most corporations will file a Form 1120, similar to Form 1040 for individual taxpayers, yet often requiring additional schedules or forms depending on the specific circumstances.
Related Terms: Income Tax, Sales Tax, Property Tax, Filing Status, Tax Returns.
References
- Internal Revenue Service. “The Agency, its Mission and Statutory Authority”.
- Internal Revenue Service. “Publication 501: Dependents, Standard Deduction, and Filing Information”, Page 2.
- Internal Revenue Service. “Individual Taxpayer Identification Number”.
- Internal Revenue Service. “Publication 501: Dependents, Standard Deduction, and Filing Information”, Pages 2, 6.
- Internal Revenue Service. “Publication 501: Dependents, Standard Deduction, and Filing Information”, Pages 8-9.
- Internal Revenue Service. “Publication 501: Dependents, Standard Deduction, and Filing Information”, Page 6.
- Internal Revenue Service. “Publication 501: Dependents, Standard Deduction, and Filing Information”, Page 7.
- Internal Revenue Service. “Publication 501: Dependents, Standard Deduction, and Filing Information”, Page 9.
- Tax Foundation. “2020 Federal Income Tax Brackets and Rates”.
- Tax Foundation. “2020 Tax Brackets”.
- Internal Revenue Service. “Form 1040”.
- Internal Revenue Service. “About Form 1040”.
- Internal Revenue Service. “Schedule C: Profit or Loss From Business”.
- Internal Revenue Service. “About Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship)”.
- Internal Revenue Service. “Instructions for Form 1065”.
- Internal Revenue Service. “Instructions for Form 1120”.
