Taxes are mandatory payments made by individuals and corporations under a government. These payments go to the government to help with government activity. There are many different types of taxes that go to different sectors of the government.
Any time a monetary exchange takes place (like when someone gets paid or buys something), you will be taxed on that money. That money then goes to the government.
Federal taxes are collected by the federal government and then used by the federal government for their bills. State taxes do the same thing just purely at the state level. The state taxes are used to provide state programs.
Sales Tax
In Texas we have a sales tax. It is 6.25% on all retail sales, lease, and rentals of most goods, as well as all other taxable services.
Here in Texas, local taxing can also occur, meaning that counties, districts, and transit authorities can impose up to a 2% sales tax. They cannot, however, exceed 8.25% as that is the set federal sales tax rate.
Income Tax
Income tax changes depending on the state, so not every state has income tax, and even those who do, they do not always share the same system.
Different systems include:
- Flat-rate income tax system- this means that all income levels are taxes at the same rate.
- Even when they have this many states have different rates.
- This is only used by nine states.
- The progressive income tax system- this means that if a taxpayer’s annual income increases into a different income bracket, so will their tax rates.
- In these 35 states the rate changes.
- Also because this system is more prorgessive they change it to follow inflation and can be easily changed.
There is a process to filing taxes and there are specific due dates you have to meet.
The IRS sets the deadline each year and it is usually mid April.
The steps:
- Gather your paperwork
- All proof of your earning and interest statements.
- A W-2 form from each employer you have.
- Receipts for charitable donations and medical and business expenses if you choose to itemize your return.
- Choose your filing status.
- This is based on your marital status.
- The percentage you pay toward household expenses will also affect your status.
- Decide how you want to file your taxes.
- The IRS recommends you use a tax preparation software to e-file to make it easier and more accurate.
- Determine if you are taking a standard deduction or itemizing your return. These are two different ways to take out deductions which reduce the amount of your taxable income.
- Taking a standard deduction is an amount that can change depending on your income, age, disabilities, and filing status.
- Itemizing your return is a way to make your deductions even greater but you must be applicable.
- If you owe money, you must make a tax payment, which means you need to apply for a payment plan.
The closest and best people to ask about taxes are your parents or the close adults in your life. Not only do they have experience doing their taxes, but at the time you will probably be in a similar situation in regards to your financial situation and tax paying as they were when they were your age.
Many adults utilize an accountant to help with their taxes. An accountant is someone specially trained in this area.
This depends on the state that you live in. Texas has no state income tax, but you do pay income tax to the federal government. How much you pay depends on your salary, but your employer will take a certain percentage of your salary out to pay taxes on and this is money that you never see.
Once you start making money, that income is taxed, no matter how much money you are making.
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