Tax: Governmental costs we must bear

Most taxes fall into one of three categories: taxes on your income, taxes on your purchases, and taxes on your assets.

It's critical to keep in mind that each dollar you pay in taxes was first earned as income. The point of collection, or when you make your tax payment, is one of the key distinctions between the various tax kinds described below.

Taxes on Individual Income:

An individual or household must pay an individual income tax office (Also known as a personal income tax) on their earnings from wages, salaries, investments, and other sources.

Many individual income taxes are "progressive," which means that tax rates rise in proportion to a taxpayer's income, causing higher-earners to pay a bigger share of income taxes than lower-earners.

Taxes on Income Earned:

Governments at the federal and state levels levy a corporate income tax (CIT) on business profits, which are calculated as revenues (what a company makes in sales) minus costs (the cost of doing business).

Businesses in the United States can be broadly divided into two types: passthroughs (such as partnerships, S corporations, LLCs, and sole proprietorships), which "pass" their income "through" to their owner's income tax returns and pay the individual income tax, and C corporations, which pay the corporate income tax. While C corporations are obligated to pay corporate income tax, the cost of the tax is passed down to consumers and employees in the form of higher prices and lower wages in addition to the firm itself.

Over time, many nations have turned to tax preparation services at rates lower than 30 percent due to their detrimental economic effects.

Taxes on wages:

Payroll taxes are levied against employee wages and salaries to fund social insurance schemes. The majority of taxpayers will be familiar with payroll taxes through looking at their paystubs at the conclusion of each pay period, where it is plainly stated how much payroll tax was deducted from their income by their employer. The greatest payroll taxes in the US are a combined 12.4 percent tax to fund Social Security and a 2.9 percent tax to fund Medicare. Employers are responsible for paying 7.65 percent of payroll taxes directly, withholding the other 3 percent from employees' paychecks. Although businesses pay around half of payroll taxes, workers bear the majority of the economic burden in the form of decreased wages.

Taxes on Capital Gains:

In general, capital assets encompass anything that is held and used for investment, pleasure, or personal use, such as stocks, bonds, residences, vehicles, jewels, and works of art. A "capital gain" is the consequence of any growth in the value of one of those assets, such as when the price of a stock you own rises.

When someone "realizes" a capital gain—that is, sells an item whose value has increased—in a jurisdiction where there is a capital gains tax, they must pay tax on the profit they make.

Capital gains taxes, commonly referred to as double taxation, occur when they are applied to earnings obtained from stock investments. This is due to the fact that corporate income tax is already applied to company earnings.

Taxes on What You Buy:

Taxes on sales

A type of consumption tax applied on retail sales of goods and services is the sales tax. If you live in the United States, you are probably already aware of the sales tax because you have probably noticed it printed at the bottom of store receipts.

Tax on excise

Excise taxes make up a relatively small and unstable portion of total tax revenues because they are levied on a particular commodity or activity in addition to a general consumption tax. Excise taxes on things like cigarettes, alcohol, soda, gasoline, and gambling are typical examples.

Taxes on Gross Receipts

Regardless of profitability and without accounting for business expenses, gross receipts taxes (GRTs) are levied on a company's gross sales. This is a significant distinction from other taxes that companies must pay, such as those based on net income or profits, such as a corporate income tax, or on ultimate consumption, such as a properly designed sales tax.

Taxes on your assets:

Taxes on real property

Property taxes are a major source of income for state and municipal governments in the United States. They are generally assessed on immovable property, such as land and buildings.

Taxes on estates and inheritances

The worth of a person's possessions at the time of their death is subject to both estate and inheritance taxes. In contrast to inheritance taxes, which are paid by persons who inherit property, estate taxes are paid by the estate itself before assets are dispersed to heirs. Both taxes are frequently combined with a "gift tax" to prevent them from being avoided by selling the asset before death.