Taxes 101

To quote the great Benjamin Franklin, “…in this world nothing can be said to be certain, except death and taxes.”  Taxes can be confusing and frustrating but, have you ever stopped to wonder when the taxes we pay originated and where the money goes?  Taxes in the form of tariffs on imports have a long history in the USA, dating back to the 1760’s.  Taxes as we know them however are more recent with the 16th amendment to the constitution. This was ratified in 1913 and legally allowed for income taxes.  Not long after, in 1930, sales taxes were introduced. Since then, more taxes have been introduced along with more legislature and complexities surrounding them.  

Taxes generally consist of money paid by individuals or businesses to help the government fund schools, libraries, armed forces, roads, bridges, police, and other public services.

  • Approximately 7.65% of your wages go to the government before you even see your paycheck in the form of a Payroll Tax.  These payroll taxes fund Social Security, healthcare, and unemployment.  
  • Property Taxes are paid annually for the land you own and real estate. This money goes to your local public services such as schools, roads, sanitation, etc.
  • Sales Tax impacts the greatest number of consumers as it is levied on goods and sometimes services purchased.  45 states have a sales tax and each state is responsible for the laws of their own state tax. The rates average between 4 – 7%.  These taxes are found on goods and sometimes services offered and are used to pay for state roads and other public safety measures.
  • Income Taxes are the dollars paid by employees based on earnings at the federal, state, and local level.  There are 7 states who do not charge a state income tax. Businesses pay income taxes as well as individuals on the income they earn.  Deductions are available to both individuals and businesses to lessen the amount of income that they pay on taxes. Additionally, not all income that you may receive (such as child support payments) is taxable.  This money is to be used by the government for activities that serve the public. Present day, income taxes account for nearly half of the government’s revenue.

 

The percentage of income that the government makes from taxes has gone up exponentially over the past 100 years, both in terms of an increased percent of taxable income and increase in the number of taxes levied.  These taxes are a source of controversy for many business owners and tax payers. The better we educate ourselves about what we are paying and why, the more informed we can be at tax time to make good decisions. Knowing what deductions are available to you and what the specific laws of your state require can help.  Our office is always available to help answer questions!!