Accounting and bookkeeping play a significant role in a company's smooth functioning. They help maintain accurate and up-to-date financial reports and statements for the stakeholders to see and make decisions. These reports can be prepared by an in-house team or financial reporting services providers. Accounting determines the financial performance and position to allocate resources, invest or divest in new opportunities, and enable seamless running. Apart from these qualities, accounting also facilitates companies to pay accurate taxes based on the income generated in the financial year. Taxation is an expense no business can escape. It is necessary to adhere to the regulations and file complete and transparent returns. 



The taxation rules, forms, and practices vary in every country and state. In the United States, the IRS (Internal Revenue Service) governs and handles taxation compliance. They decide the tax rates and systems for filing and other tax-related requirements. While the tax rates stay the same for all products and services, a few plans charge different tax rates for different people. These indicate a progressive taxation process. 



What is progressive taxation?



Under the progressive taxation system, businesses pay taxes based on income. Businesses with higher revenues come under higher tax brackets than those with lower income levels. The goal is to create equal income distribution by taxing a significant income portion of the rich and low tax rates for the poor. It makes accounting for certain industries, like accounting for real estate agents, very important.



If all the taxpayers get charged a flat tax rate, it would be wrong because the rich won't get affected, but the real purchasing power for the poor will go down. It will create instability and inequality in income distribution and living standards. That is why there are seven tax brackets for different income levels in the US (10%, 12%, 22%, 24%, 32%, 35%, 37%). Based on the reports prepared by the financial reporting services providers, the taxable income balance gets taxed in the bracket it falls. 



Types of progressive taxes:

Apart from income taxes, other taxes that follow the progressive taxation system include:

Estate taxes: Taxes levied on the total assets passed on to the beneficiaries constitute estate taxes. They follow a progressive taxation system with total asset value being the measure. 

Obamacare taxes: These taxes get imposed only on individuals with more than $200,000 earnings or $250,000 for married individuals filing jointly. 

Tax credits- follow a progressive system where some expenses are available as deductions to only those with income falling below a specific level.