It is March, so tax season is in full swing. Taxes are on everyone’s mind. Sales, income, property – taxes are a part of everything we pay for. April 15 is the deadline for taxes for 2024, so it is important that we all understand the taxes we are paying.
In this post, we will go through more than just federal and state taxes. We will dive into the four most common taxes we pay throughout the year and why everyone should have a tax plan.
Purpose of Taxes
First, let’s discuss why we pay taxes at all. The taxes that every individual pays are what keep the government and government bodies running. They pay for road maintenance, school systems, law enforcement, public property that everyone uses, and more.
Without funds from the general public, many of these services that everyone benefits from would fall through and we would all suffer the consequences. Many individuals may not like that they have to pay taxes, but we would regret it even more if we did not have the benefits they provide. Roads would be horrid to drive on, harming our vehicles. Parks would be overrun with weeds and rundown equipment, discouraging children from playing outside and making friends.
4 Types of Taxes
There are numerous taxes we pay regularly, from property tax to income tax and everything in between. Understanding the difference between types of taxation helps individuals to develop a plan on how to budget for them as well as cultivate an understanding of their contributions to the community.
• Income Tax
Income tax is the amount someone pays according to either their job or corporate revenue. When you receive pay for performing a specified duty according to the job you do, both state and federal agencies take a portion. This portion is based on the percentage of income you make in a year where higher-paid individuals pay more than lower-paid individuals.
Income tax is one of the most proliferate streams of revenue for the government, paying for much of the public works that we use, such as public commodities and government offices. These taxes are what we pay or get refunded from when the new year comes around – both state and federal.
• Property Tax
If you have ever owned property like a farm or a house, you are intimately familiar with property tax. This form of taxation is issued by local and state governments to pay for local commodities such as parks and public works. Property tax derives from the overall value of the property you own and will increase as the years bring higher inflation.
• Sales Tax
Have you ever bought an appliance or item of clothing and the end payment is more than the price tag? If you reside in the U.S., of course, you have! That is sales tax.
Sales tax is additional revenue placed on the purchase of goods issued by the government. These taxes are typically issued at the point of sale, so when you purchase a sweatshirt from a retailer such as Wal-Mart, you will be paying slightly more than the price tag states.
This tax comes from a percentage of the retail price of the item. The retailer may collect this tax, but it does not end up in their pocket. Retailers and grocery stores may be responsible for collecting the tax, but it ultimately goes to the government.
• Gas Tax
Gas tax may be a misnomer; it encompasses both diesel and gas, taxing all fuel types. The more vehicles that drive on the road, the harsher road conditions become from wear and tear. This tax is essentially needed to improve road conditions and create a better driving experience for all.
Electric vehicles do not have to pay a gas tax since they do not use fuel. However, they do have to pay higher registration taxes to make up for their lack of contributing to road reconstruction from the gas tax.
Conclusion – The Importance of a Tax Plan
Tax season may come around only once a year, but planning for tax season throughout the entire year can make a huge difference in the amount you owe and the amount that is refunded to you. Without the proper research or the right financial advisor, you may be missing out on a large amount of deductions, so it is important to create a plan at the beginning of the year and follow through with your tax advisor throughout.
No one likes paying taxes, but it is a necessary evil to enjoy the benefits we attain from them. In the 2024 tax season, get the most out of your investment by relying on Tax Avenger in Canton MI. Our tax and accounting firm provides exceptional customer service supported by more than two decades of experience. Contact us for tax preparation, tax planning, small business accounting and more!