Income tax

An income tax is a government tax on the taxable profit earned by an individual or corporation. The resulting revenue is usually one of the chief sources of cash for a government entity. It is considered one of the more fair forms of taxation, since it is only imposed if a person or business has been successful enough to generate taxable income. Thus, its impact on the poor or unprofitable is minor to nonexistent.

Most tax rates are progressive, which means that the tax rate increases as the level of income increases. The reasoning behind this tax structure is that the poor are less able to pay taxes, while the rich have more excess cash with which to pay taxes.

The amount of income tax paid can be reduced by a number of deductions, which are allowed as the result of legislation by the relevant government entity. These deductions are usually intended to foster certain types of behavior by taxpayers. For example, the research and development credit was used to foster more R&D expenditures within the United States.