"In 1862, in order to support the Civil War effort, Congress enacted the nation's first income tax law. It was a forerunner of our modern income tax in that it was based on the principles of graduated or progressive taxation and of withholding income at the source." history of the income tax in the United States.
You may not jump for joy but, at least, it may make you feel somewhat better to know that taxes on income and sales are not of recent origin and there is plenty of evidence to show that they existed in some form or the other even in ancient times.
According to the literature of the Sangam period (circa 200 BC to 200 AD), the kings of southern India had an eight member council to administer the kingdom that included an accountant and a treasurer. The revenue of the state was from sources like customs, tolls, and land tax. For special projects, such as the raising of the banks of the river Cauvery by the Chola kings, farmers had the option of sending one man per joint family to work on the project.
In ancient times, small business owners went by different names. They were called traders and artisans. They maintained their accounts in dried palm leaf manuscripts. They did the math either mentally or using an abacus. Now that we have got somewhat better equipment, let us see how we can make tax times less stressful:
- First we are going to see how to map GnuCash accounts to income tax schedules.
- Next we will see how to create reports that will align with the way the Internal Revenue Service (IRS) wants you to report income and expenses. Also, you will learn how to generate a data file that you can import into many tax filing applications.
- Then we will move on to setting up sales tax rate tables.
- Finally we will see how to apply the appropriate sales tax rates to your invoices and generate a report to show the amount of sales tax owed.
So let's see how we can better prepare for tax time.
The GnuCash income tax module that we will see in this chapter covers only the following US business types:
From these, we will be using the example of individuals who file Form 1040. This form will typically be used by self-employed persons as well as sole proprietors of businesses. Within this Form 1040, the specific section that we will cover in more detail is Schedule C. Schedule C covers the income of the business for the tax year and deductible expenses as well as the resulting net profit or loss of the business.