Different Types of Taxes We Pay in the US
The US tax system operates both on federal and state levels; each government can implement its taxes. The federal authority cannot interfere with state tax policy. Similarly, there are local taxes, as well, which are levied by counties and local authorities. In a nutshell, the US tax system is quite complicated. Taxes may vary from individuals to business owners.
Now to dig more in-depth, the US tax system operates both on the federal and state levels. These taxes are collected by the IRS, which is known as the Internal Revenue System. There are many types of taxes, which includes:
Consumption tax
Income tax
Property tax
Real estate tax
Capital gains tax
A consumption tax is levied on people on their spending, not on their earnings. There are two types of consumption duties, which are as follows
Sales Tax: State and local authorities collect this tax to enhance their revenue
Excise Tax: Similarly, the excise tax is on specific goods such as petrol or liquor, which is another example of consumption tax
Many economists want a central consumption tax for the USA. It could substitute or counterbalance other taxes like capital gains etc.
Property taxes is the one an individual pays on a house or a piece of land he owns or commercial real estate. First, you need to consider when you want to buy a new home or property and look at property tax. Unlike a loan, property tax expenses don't repay.
It implies that you will keep on paying for these duties as long as you live in the house until you are eligible for tax deductions.
Capital gain is a fee collected by the government when a particular asset is sold. It includes stock investment or estate property. Capital gain tax is the amount minus the total price of the purchase and the price at which an individual sells them.
The individuals who make investments have to pay capital gain tax. Because many people in the USA do not make investments, they do not pay this tax.
Estate/Inheritance tax was applicable when someone died. It is deducted from the deceased's total assets, usually when the assets are passed on to heirs. The estate tax is mostly a federal tax, but some states also levy them. The state government usually collects an inheritance tax.
Income taxes are precisely the same as the name suggests. It is a levy on the income you make. Mostly, the federal government charges income tax. It can be marginal and progressive- progressive means it is directly proportional to an individual's earning. It is marginally applied to people of high income as compared to lower earners. Similarly, there is another type of tax, usually known as corporate income tax. The IRS charges it on the profit of a business or firm.
The Takeaway
Paying taxes is quite a big deal for many people. If you are not able to manage your taxes, then you might want to rethink your approach. You could use professional help or use a new tool to make it easier for you. Tax advisors can give you valuable suggestions to match up to your expectations. Good management can lead you to save a lot of money in taxes.
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