As the old adage goes: “There are only two things that are certain in life: death and taxes.” Becoming an adult also means that you’re a functioning member of the state and a contributing member at that. You get a new level of freedom, but also lots of responsibilities. One of those responsibilities is to handle your taxes. Whether that’s filing them, paying for them, or overall managing them, you need to do your taxes as an adult. There are different ways of tackling them as well: hiring accountants, searching for the best online tax service, or learning them yourself. Whatever that may be, you need to have a fundamental level of knowledge about taxes in order to avoid penalties from the IRS.
What are taxes?
Essentially, a tax is a mandatory financial charge that is placed upon an adult citizen, also known as a taxpayer. A taxpayer could also be any other legal entity, so it’s not bound by an individual alone. For example, businesses pay taxes. Corporations who do trading with other states are also taxed inside and outside the state they’re doing business with. The tax collected is then used as a fund for the government in order to have a budget for public spendings such as roads, infrastructure, or government services.
What are the types of taxes?
Of course, a tax isn’t limited to one type. There are different types of taxes imposed upon different entities. These types vary from one state or another, depending on their law. Whatever the case may be, here are some of the most common types of taxes that you might encounter.
- Income tax – As the name suggests, income tax is the tax that is incurred from your salary or wages as a worker. They are calculated based on the person’s (or business) socio-economic status. This means that the tax paid by those who are barely getting by has a different percentage than those of millionaires. The taxable income is basically the income percentage that is determined to be the one where your income tax will be incurred. This can vary depending on different deductions, tax exemptions, and other situations for which the individual or business is eligible.
- Property tax – Besides your salary and income, property taxes also exist. Property taxes may come in different forms: land, houses, or even machinery. Of course, the properties that are to be taxed vary from state to state. Property tax is calculated by determining the value of the property and then having the property tax rate applied to such value. The value of your property is determined by an assessor, so it’d be fair and legal. Property taxes are most commonly used in homes, however, since these are the main sources of it.
- Sales tax – Sales tax is probably the type that you’re most aware of besides income taxes. Sales taxes come in many forms but essentially: a sales tax is a tax collected on each and every good and service sold within a country. Of course, the sales tax rate is applied to the prices of the goods and services a seller may be selling, so it differs as well. There are two possible scenarios for how sales tax is being collected and remitted. Firstly, the seller could be the one responsible for collecting the sales tax from the buyer and then remitting it to the government. Other times, it is the buyer’s responsibility to pay the sales tax directly to the state or government. In any case, this depends on state laws, as always.
In conclusion, taxes are a necessary aspect of society. It is what governments use for public funding for essential things and services that run the society itself. It may sound like you’re giving up a lot, but also look around you. You might be benefiting from the tax paid by you and your neighbors. Are you walking around on good pavement, with good public transportation? Are the bridges, parks, and public places in your area desirable to go to? All of these things come from your taxes.