A lot of taxes can be classified into three types: taxes on your earnings, taxes on your expenses, and taxes on your property.
It is vital to remember that every single money you pay in taxes is hard-earned money. And knowing the basics of taxes will not just guide you in paying them lawfully, but also in managing your finances.
You should learn where your taxes go and what type of tax you should be paying.
1. Taxes on your earnings.
- Individual Income Tax – An individual tax is a personal income tax from your income, salaries, or other kinds of business.
A lot of these kinds of taxes are progressive. A person’s individual tax rate increases as their income increases
- Corporate Income Tax – CIT is a tax coming from corporations. Its revenues are business sales minus costs.
Not all corporations pay CIT though, and it depends on the type of corporate business that you have.
There are two categories of business in the US that pay taxes in different ways; There are the C corporations that pay the corporate income tax alone. And S corporations together with LLCs, and Sole proprietorships that pass income through their owner’s income tax returns, and pay individual income tax.
- Payroll Taxes – Payroll taxes are taxes paid based on the salaries of staff and employees. The majority of the taxpayers are familiar with payroll taxes.
It is currently the largest payroll tax in the US. And 12.4 % of it funds social security. While 2.9% of the tax goes to the funding of Medicare.
- Capital Assets – It involves anything owned and used for personal use, like arts. If one of those artworks that you had, increased its value, you’d pay for the tax of the profit earned.
And if you have assets such as stocks, you will be double taxed. That is because you have to pay for your income tax or corporate tax, and your capital asset.
2. Taxes on your expenses.
- Sales Taxes – Sales taxes are in the form of consumption tax coming from the retail sales, goods, and services you take. In the US this kind of tax is always printed at the bottom of the receipts. And they still use the traditional sales taxes, which are a reliable source of state and local revenue.
This kind of tax has a significant effect on where consumers buy. That is because sales tax only applies to businesses that do not produce their goods.
- Gross Receipts Tax – GRTs apply to the company’s gross sales whatever their profitability is.
This tax is harmful to starting businesses. And even results in losses in the early years of some. Although it is being despised for being inefficient and harmful, policymakers are looking into using GRTs again for new revenue streams.
- Value Added Tax – VAT is a tax based on the assessment of a product’s value.
All of the businesses in the production industry are required to pay VAT on the value of their services.
140 countries and more, except the US, use VAT. It is a common significant source of revenue globally.
3. Taxes on your property.
In order not to have people access to any of your information, private or business-related, you can restrict access to only a handful of people. Restricting access prevents a lot of people from getting to your data and risking a breach. You can also employ only your trusted employees to the information for safekeeping. Add passwords or extra security when securing your online information.
- Property Taxes – these taxes come from immovable properties like land and buildings. It is an important source of revenue for the local government and state.
Property taxes in the US are over 30% of their total state and collections. They rely on property tax to fund public works like roads, stations, and departments.
These kinds of taxes are stable, transparent, and neutral.
Conclusion
Due to mistakes of not knowing, many people with good intentions wind up dealing with tax issues. They weren’t attempting to cheat, but they made a mistake simply because they didn’t realize what they were doing when they did. Knowing where your taxes go and what kind of tax to pay is a must, especially if you have a business. The chance of making mistakes due to ignorance is considerably reduced if you know what you’re doing. And, the consequences will cut terribly on your finances.