It seems as though taxes exist in every aspect of life. There is taxation on the items we buy, there is tax on the money we earn and there is even tax on the things we own. Taxes are a confusing and extensive topic to cover. Because of this, many people look for an accountant, throw their hands in the air and give up. Maybe after reading this article the topic of taxes will not be such a difficult and frustrating subject to discuss.
Types of Taxes
1. Sales Tax
Sales tax, or consumption tax, is a tax that is applied to everything that you buy. This applies to individual citizens as well as businesses. There are a few hidden taxes of this type. Fishing and hunting licenses and tolls are a few of these. Even if they are sometimes called fees, they are actually taxes in disguise.
2. Income Tax
Income tax is a tax assessed on any person that earns income in the country. Often, the percentage of income tax that a citizen pays is based on their income level. People who have dependents or have disabilities are qualified to have tax credits issued to their income taxes, which will make the amount that they owe smaller. In the United States, these taxes must be paid by April 15th of the following year of the tax period. If they are not, the one who owes tax money can be assessed serious interest penalties and it might take many years of income to pay them off.
3. Property Tax
This type of tax is self-explanatory. If you own personal property, you will be required to pay taxes on your property. Some examples of property that is taxed include vehicles, homes, recreational vehicles and land. These taxes are normally charged by the county, city, or for those of us unfortunate enough to live inside city limits inside a county, you may responsible for both. There are not many tax breaks where these taxes are concerned but they are possible for senior citizens and other groups. The fees to drive a car or boat are also taxes of this type.
4. Corporate Taxes
Just like the income tax in individuals, corporate taxes are assessed on the money that a business earns. There are different methods in claiming these earnings and often, this depends on how the business is structured. Businesses can be an S model, a C model or a sole proprietorship, for example. Each one of these business types pays taxes differently. Because corporate taxes are often complicated in businesses, accountants are often retained to handle these difficult tax issues.
Corporations must also pay payroll taxes. Often called FICA, this type of tax goes to the social security fund and other similar programs. Because this is an additional cost that a business incurs for having employees who are paid in this manner, many companies have started to hire employees as independent contractors to avoid this expense.
5. Capital Gains Taxes
Capital gains taxes refer to the taxes that you owe on an investment after it has sold or appreciated. Some common examples of capital gains include real estate, stocks and bonds. Much like corporate taxes, there are many guidelines and loopholes to this type of tax claim. Because of this, it is better to hire someone who specializes in this type of tax like accountants Birmingham.
6. Inheritance or Estate Taxes
This is the only type of tax that depends upon the death of an individual. When a family member dies and they pass on their estate to another, the beneficiary can be responsible for the taxes. Although there is a portion of the estate that is not taxed, if an inheritance exceeds the “write off” limit, the penalties can be steep. The use of life insurance can often offset some of the inheritance costs. Again, this is complicated tax stuff and you might be better off with an accountant or other tax professional to be by side through the process.
Advantages of Taxation
No one likes to pay taxes, but everyone loves the services that taxes can give to a community. For example, we all grimace when it is time to pay our personal property taxes but without them, roads, schools and other community necessities would not be funded. Without payroll taxes, the elder generation could not rely on Social Security and Medicare when they grow older. For these reasons, taxes are advantageous to society.
Disadvantages of Taxation
With every positive there is a negative aspect to taxes. For instance, did you know income tax was originally a tax on only the rich and was proposed on a temporary basis? This is true. Until the 16th Amendment was ratified, this was the case. After 1913, which was the year of the ratification, Congress was given the right to impose such taxes. The fact that we are taxed both federally and at the state level seems unfair as well. Because of all these taxes, citizens have a hard time paying their bills. This is terrible, the taxes are supposed to help the community but instead, have the potential to drive out those who cannot afford them.
Should We Be Taxed on This?The only thing we can be certain of in life is “death and taxes”, at least that is what a great man named Benjamin Franklin said. This is definitely the truth but is it fair for those who make different incomes to be taxed differently from one another? This is just one of the tax topics that is always being debated. This is a topic debated countrywide but there are also more localized debates. In some states, the government and the citizens argue over certain taxes such as gas and electricity. Often, states have the right to set these taxes and because they are not consistent nationwide, many people have a problem with them. We, as citizens, understand that taxes exist for our good but if they are unfair or biased, we begin to question the positive aspects of these tariffs.
In the 1600′s, Americans threw tea overboard to protest the tax imposed by Great Britain. 400 years later, we are still contesting taxes and how the government should handle them.