Taxes 101: Everything You Need to Know

Learning more about the taxes we pay and how they affect the world around us is beneficial for everyone. Greetings from the tax world! Paying taxes is one of the key components of the social contract between you, as a citizen, and the economy.

“A compulsory contribution to state revenue, levied by the government on workers’ income and business profits, or added to the cost of some goods, services, and transactions” is how the dictionary defines the tax. We’ll broaden this definition by trying to provide more information in one description: a tax is a mandatory payment or charge collected by local, state, and federal governments from individuals or businesses to fund essential public services and operations.

All taxes may be broken down into three categories: taxes on your purchases, taxes on your income, and taxes on your assets. One thing that practically all taxes have in common is that taxation is levied as a percentage of money exchange. Your compulsory tax payment is determined by three factors: your income, the state you reside in, and the community you belong to.

There are many resources and advice available to make filing your taxes very simple. In this article, we tried to gather basic information about the types of taxes 101, so you can get enough knowledge to address the forthcoming tax season.

Income Tax 101

An income tax is a tax levied on individuals or entities in respect of their income or profits earned throughout a year. In the United States, taxation is imposed on all types of income, including wages, gifts, dividends, earnings from sales and investments, lottery or gambling winnings, as well as revenue from imports.

Who pays income taxes?

While some people have low enough salaries to avoid paying taxes, those in the middle and upper classes are nevertheless obligated to give the government a share of their revenues. In 2022 about 60 percent of American households and permanent residents who worked in the country were required to submit tax returns if their annual income exceeded a specific threshold.

Take note that there are states that do not impose a state income tax as of 2022. These 9 states are Wyoming, Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Washington.

The gross income threshold for tax filing for the 2022 tax year ranges from $12,550 to $28,500, depending on your age, filing status, and dependents. If you make $400 or more through self-employment, you must also declare your income and file taxes.

The Tax Day

Generally, you have until April 15 (also referred to as Tax Day) to submit your tax return if you receive any of the aforementioned sources of income. Tax deadlines, however, are impacted by national holidays. So, for the majority of taxpayers, Tuesday, April 18, 2023, is the due date for filing 2022 tax returns or requesting an extension to file and pay the tax owed.

Filing Income Taxes

1. Collect the needed documents, including:

• W-2 forms from all employers
• Statements of additional earnings and interest (1099 and 1099-INT forms)
• Receipts for charitable contributions, as well as for business and medical costs.

1. Choose your filing status (married or single).
2. Choose the tax filing method you want to use (Taxes can be filed in one of three ways: online using tax software, by hand-filling out IRS Forms 1040 or 1040-SR and mailing them, or by hiring a professional tax preparer).
3. Decide if you are itemizing your tax return or taking the standard deduction.
4. File your taxes by the due date.

Sales Tax 101

Sales taxes are regarded as onerous. Even those who have been handling these taxes for some time struggle with how to handle tax-related decisions.

How should you determine whether a sale is taxable or exempt? Before reporting sales tax, this is the most difficult question to answer. In the United States, the majority of “tangible” property is taxable. However, as sales taxes are determined at the state level, some states do not impose taxes on food or clothing. Thus, to learn whether the goods you sell are subject to tax, contact the taxing authority in your state.

Who Pays Sales Taxes?

Most of the time, the seller is responsible for paying or collecting sales taxes. The seller collects the sales tax from the buyer and sends it on to the state. Generally, the seller collects it at the moment of the sale. Five states—Alaska, Delaware, Montana, New Hampshire, and Oregon—do not impose a sales tax.

The calculation of sales taxes

Sales tax is governed at the state level, and no national general sales tax exists. Each state sets its own sales tax rates and guidelines, and they can vary.  Also, cities and counties have the authority to impose extra sales taxes. Sales tax is calculated by multiplying the purchase price by the applicable tax rate.

Property Tax 101

Property taxes are levied on many types of property, including personal property, land, real estate, natural resource extraction, and business property and equipment. The amount of tax is established annually based on the market value of each property on a particular date. The 50 states as well as the District of Columbia, obligate property taxing jurisdictions.

The calculation of property taxes

The amount of property tax assessed against the owner will differ significantly depending on a number of variables, including the tax rate, the method used to calculate the tax, and the type of property being taxed. However, the assessed value of a property is usually multiplied by the mill rate (also known as the tax rate) to determine the amount of property taxes due in every state.

Who is responsible for property taxes?

Local governments are responsible for regulating property taxes. As a result, rates differ significantly between states and communities. Finances from property taxes are usually used for education, infrastructure such as roads and highways, water and sewer system renovations, public servants, and other services that benefit the local community.