You have to pay them every year. You will very certainly receive a reimbursement check as well. But do you really know what are taxes and understand how taxes work? There’s a lot you don’t consider when you hand up your hard-earned money every payday.
What are Taxes?
Most people in the United States are familiar with paying taxes, but many do not know exactly what taxes are. Taxes are simply a portion of money that is taken out of an individual’s earnings by the government in order to fund various public services.
The amount of tax an individual pays is generally based on their income and filing status. While taxes may seem like a burden, they are actually essential in ensuring that society has the necessary resources to function properly.
How do they work?
Tax is money that you pay to the government when you earn or spend money. The public expects the government to use that money for everything. Roads, public schools, police, the military, welfare, healthcare, and other government programs are all made possible by tax dollars.
We earn money while we work. The government takes a portion of your earnings to help pay for these items. The bigger your wage, the higher your tax rate. This is known as income tax.
Income tax is classified into two types:
- Federal: Ranges from 10%-37%
- State: Rate depends on the state.
There are seven states without an income tax:
- South Dakota
Wages are not taxed in Tennessee or New Hampshire.
Taxes are difficult to understand. That’s why the majority of us pay someone behind a desk to do it for us. But, let’s face it, most folks are primarily concerned with receiving their tax refund. Paying an accountant can also help you acquire additional deductions, increasing your refund. The most important thing you should know about taxes is that you must pay them. Whatever the case may be.
Misconceptions Regarding Taxes
Most individuals don’t take these into account. Here are some tax-related items you may have overlooked:
- Your entire annual revenue is considered income. It makes no difference where the money comes from.
- If you buy and sell stocks and make a profit, you must pay capital gains tax. The amount you pay is determined by the length of time you held the stock.
- Businesses are taxed only on their profits, not their income. Businesses can avoid paying taxes by “writing off” expenses.
- The poor pay the most taxes. In Alabama, one-fifth of low-income families pay roughly 11% of their income in taxes. People earning $229,000 or more pay less than 4%.
- If you sell anything on eBay or Craigslist, you must pay taxes on the proceeds.
Even if you barter (trade) goods or services, the IRS requires you to pay taxes on them. You must declare the “fair market worth” of your goods or services.
- You must still report your unemployment benefits as income if you are unemployed.
- If you receive alimony, you must pay tax on it. You cannot deduct it from your income if you pay it.