Taxes are there wherever you go. There’s tax in the food you eat, the movies you watch or even the bed you’re sleeping in. It’s the source of funding the government uses to get projects done.
There are other kinds of taxes aside from the ones listed below. But here are types of taxation that you’ll probably encounter the most throughout your life (or death, since taxes still apply after death).
Probably the most popular among all taxes, this is the culprit for chopping off a good amount from your monthly salary. It is levied on an individual’s salary as well as other sources including dividends, capital gains, self-employment income, allowances, and contest prizes.
Income tax computations are more complicated than it seem. There are concepts of “total income,” “adjusted gross income,” and “taxable income.” Taxes levied are also divided into two categories: the effective tax rate and the marginal tax rate.
If you’re employed under a company, your employer will do all the necessary computations. Self-employed individuals and those that gain extra income aside from their first source should file tax returns themselves.
This is added to every commodity you purchase. Retail prices are already computed to include the cost of sales tax.
Sales tax rates vary from one state to another, with some even having no sales tax on their goods. Funds obtained from this tax are used by states to fund their local projects.
Your assets could also be taxed by the government. Houses, cars, boats, and now even paintings and similar artworks could all be subject to property taxes. The amount is based on the assessed value of an asset.
The funds gathered goes to financing services such as public schools, security maintenance, and sanitation.
Social insurance tax
Under this are Social Security, Medicaid, and Medicare taxes. It is deducted from the income apart from the regular income tax subtracted from your salary.
Social insurance taxes are made up of two separate taxes: one for funding social security which is 12.4% of the wage; the other is for the Medicare program which is 2.9% of the wage. The employer and employee each pays half of the social insurance tax. Self-employed individuals pay the whole share of 15.3%.
Much like individual taxes, corporations must pay due taxes to the federal and local state. Corporate taxes are progressive, meaning the higher the revenue, the higher tax rates applied.
There are also ways to legally reduce the tax paid by corporations. Maximizing tax deductions and reducing the taxable income are done by their financial consultants for optimal profitability.
It’s specifically imposed on items such as imported goods, air travel, telephone services, fuels, alcoholic drinks, and cigarettes. Some states even have excise tax for activities like gambling. It’s enforced by either the federal government or the local state you’re in.
Unlike sales taxes which are added after the actual value of a commodity, excise taxes are incorporated in the computation of the sales price. Excise taxes are also known as “sin taxes.”