Making Sense of the Madness: Different Types of Taxes You Have to Pay

The job we have, the things we purchase, and the stuff we have are all taxable. America itself needs
income and we are the source that ensures the country is able to operate and stay on its feet every year.
The US government collects about $2 trillion in federal taxes alone. The total income America taxes is
much more than this when you count all the other taxes. What are the other types of tax? This is
important to know because it gives you a better idea of what you’re expected to pay. Keep reading to
learn this answer.

Income Taxes

You may be most familiar with income taxes as most people who have a job must file a tax return each
year. Many Americans look forward to tax season since many do qualify for a tax refund.
You get the most out of your taxes when you understand what tax credits and deductions you qualify for.
There are 3 types of income tax:

Federal Income Tax

This tax is based on your income, earnings, and wages over the course of a year. This amount is
calculated for those who are hired as a direct employee, and federal taxes are deducted from your
paycheck.
If you are self-employed, you should save money to the side on your paycheck because these funds are
not withheld. Nonetheless, you must pay federal taxes you owe when you file. You pay self-employment
tax, which is about 15.3% of your income.

State and Local Income Tax

Not every state will have state and local income taxes; there are nine that do not. There are also 9 states
that has a flat tax rate: Pennsylvania, Utah, Massachusetts, Kentucky, Colorado, Indiana, Illinois, North
Carolina, and Michigan. The rest of the states in America use marginal tax brackets between 2-5%
depending on how much you make.

FICA and Payroll Tax

All Americans also get taxed in order to fund Social Security and Medicare. There may also be a tax on
social security benefits
if you have one. You will pay about 6.2% of your income towards Social Security
and about 1.45% toward Medicare. Those who make more than $200,000 a year pay another 0.9% to
Medicare (single filer) or $250,000 (joint filers).

Capital Gain Taxes

Any time you sell an asset, you may need to pay taxes. When it comes to federal capital gain rates, what
you owe will depend on how long you had the asset. Short-term capital gains rates are for assets you
own a year and under. Long-term capital gains taxes are assets you own beyond a year. Rates are lower
with long-term capital gains.

Investment Taxes

Investing is a big part of capital gains. It is money you make when you trade stocks and bonds. When you
invest in stocks and mutual funds, you may get a 1099-DIV form to determine qualified and ordinary
income.

Property Taxes

Property taxes are calculated on the value of your home, including the land. You must pay this at the end
of each year. It is not unusual to see property taxes rise as what you owe is predetermined by the country
assessor or equivalent office. You pay taxes based on a percentage.

It varies state to state and can range between 0.18% – 1.89% of the value of your home. It may also be as
much as 40% of the value of your home.

The money you pay goes to local issues in your area of residences like road maintenance, drinking water,
schools, and sewage treatment. There is also another type of tax concerning the personal property.
Estate Tax: This tax applied to funds and assets you pass after passing away. It included investments,
cash, real estate, and anything else of value.

Inheritance and Wealth Taxes

Inheritance taxes are similar to estate taxes in the sense it is taxes that are transferred to another person
upon the death of the individual. The person who inherits valuable assets are taxes based on how much
they inherited. This type of tax is only required in six states.

Goods and Services Taxes

When you purchase certain goods and services from a seller, you are also taxed. In many cases, you will
not see this tax when it is added to the price of an item.
Other times sellers will separate the items you buy and the taxes for you to see. This type of tax is indirect
because it is not really you getting taxes, it is the retailer.

Sales Tax

Sales tax is towards any item you buy at the point of sale. There is no federal sales tax, only sales tax
required by the states, cities, or districts. Sale tax is a type of ad valorem tax you can expect to pay
between 2-6%.

Value-Added Taxes

Value-Added Taxes (VAT) also applies to items you buy like sales tax. What makes it different is that
VATs are not only added at the final sale. It also applies to every stage of the production process. The
percentage of tax you must pay is based on the value of the product.
This is the main reason why the price you see in stores already includes this and it is separate from sales
tax. You will pay a VAT tax and a sales tax at the end of the sale.

Having More Understanding on the Tax We Pay Helps

There is more than just one type of tax we pay. We pay several types of taxes every day of every year.
Anytime you buy something, it is taxable. Anytime you earn something, it is taxable. When you can
understand and expect where they come from and how much you need to pay, you can budget and plan
better.

If you are interested in having financing and accounting services to be in better control of your money, be
sure to contact us on our website.

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