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Why Do We Pay Taxes?

I am sure you've heard the phrase that 'nothing is certain but taxes and death.' There are many types of taxes that individuals must pay that consist of federal, state, payroll, self-employment taxes, and more. Taxes paid fund schools, roads, the government, and many other things. So, why do we pay taxes, and which ones apply to you? Here are four types of taxes that you need to know. 

Neon red Tax sign
Photo by Jon Tyson on Unsplash

Federal & State Income Taxes

You may see federal income tax deducted from your gross pay if you work for an employer. When you completed your W-4, you would have selected the allowances or adjustments you wanted to withhold from your paycheck. You can adjust these withholdings throughout the year if you think too much or too little tax is deducted from your gross pay.

State income tax is also deducted from your gross pay like federal income tax. There are seven states with no payroll income tax. Many fixed-income retirees live in states with minimal to no state tax requirements. 

See my feature on Yahoo where I discuss how to manage your tax refund.

Self-Employment Taxes

You may be subject to the self-employment tax if you own your own business. If you operate your business consistently and the sole purpose is to profit, this tax may apply to you. Depending on the type of business you establish, you may be able to file a Schedule C with your tax return, or you may have to file a business tax return. 

Property Taxes

If you own property such as a home, you will have to pay annual property taxes on the home's value. These taxes are collected by the city where you live, and tax rates can differ based on the value of your property. Some states allow property tax exemptions for specific individuals. For example, Florida offers a $5,000 property tax exemption for eligible disabled veterans. If you are a 100% permanent and total disabled veteran in Florida, you can apply for a complete property tax exemption. However, eligible residents must still pay specific non-ad valorem assessments.

Sales Taxes 

Whenever you make a purchase in-store or online, you may see that you must pay tax on your items. Sales tax can apply to groceries, furniture, vehicles, travel, clothes, and any other things you can consider. Some states may charge a sales tax on food items, and others may not. Many states offer a tax-free holiday during the beginning of the school year as a way for families to save money on their purchases. Not only is this beneficial to the consumer, but it can also increase sales for business owners. 

See my feature in the Back-to-School Budget Planner to see how you can take advantage of your state's tax-free shopping. 


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