Taxes in the U.S.

• Taxes are a required payment of money to governments.
• Taxes provide public goods and services for the benefit of the community.
• Taxes move money from private individuals and businesses to the government.
• Taxes help regulate the economy and redistribute income.
• Taxes can be used for federal, state, and local initiatives.

Types of Taxes in the U.S.

• Sales Tax is commonly used by state and local governments to raise revenue.
• Some states without general sales taxes include Alaska, Delaware, Montana, New Hampshire, and Oregon.
• Sin Tax is levied upon luxury goods such as luxury cars and jewelry.
• Sin Tax is imposed to discourage people from using products like tobacco and alcohol that are dangerous to one’s health.
• Travel Tax is government-mandated for travelers in the US and funds the Federal Aviation Administration (FAA).
• Airlines charge 7.5% tax on base airfare.
• Capital Gains Tax is imposed on profits made from investments and the sale of real estate properties.
• Long-term capital gains are taxed at a lower rate.
• Short-term capital gains are taxed at the same rate as income tax.
• Inheritance/Estate Taxes are paid on the transfer of properties from a deceased person to their heirs.
• Estate taxes prevent the transmission of tax-free wealth in America's most affluent families.
• Income Tax is required of all workers, regardless of employment status, and is the largest source of revenue for the government.
• Value-Added Tax (VAT) is placed on the added value of goods from production to point of sale.
• Michigan imposes VAT called the Michigan Business Tax, being the only State in the U.S to do so.
• Payroll Tax is the percentage of an employee's salary that is remitted to the government.
• Included in payroll tax are contributions to Medicare, Social Security, Disability, Unemployment, and Retirement.
• Property Tax is another main source of government income.
• Property Tax is levied on real estate or personal properties.

Areas Where Most Americans Pay Taxes

• Real estate property taxes are for houses, land, and buildings, and are paid quarterly, semi-annually, or annually.
• Real estate property taxes can be included in a mortgage.
• Personal property taxes apply to cars, boats, and farm equipment, and are paid yearly.
• Market Value is what you would receive if you sold the property.
• Assessed Value is the amount the property is worth for tax purposes.
• Assessed Value is determined by the city or county assessors.
• Property taxes are paid on the assessed value.

Taxes on Wealth

• Estate tax is a federal tax on a deceased person's assets like bank accounts, investments, and property.
• Estates over $5.25 million would be taxed at 40%.
• Because the estate tax can be quite high, careful estate planning is important for a long-term financial plan.
• Gift tax applies to any amount over $14,000 a year and is taxed at 45% as a general rule.
• The gift tax is paid by the giver, not the receiver.
• Inheritance tax is collected on the property left to heirs in a will and is collected by the state only, as Virginia repealed this in 2007.
• Estate planning prepares to transfer your assets to others upon death.
• Estate planning expresses how a person wants their estate distributed after death.
• Estate planning appoints the person who should distribute your estate.
• Estate planning records information such as the care of minor children.
• Estate planning serves to avoid probate when the Government decides the value of assets and distribution, reduce taxes and costs.

Earnings

• Payroll taxes include Social Security (FICA), the Federal Insurance Contributions Act.
• Social security is an entitlement program for old-age, survivors, and disabled, and Medicare provides medical insurance benefits.
• Income tax is paid based on income earned over the past year and is composed of federal and possibly state components.
• Income tax is the largest component of the nation's tax revenue.

Purchases

• Excise taxes apply to tobacco, alcohol, gasoline, tires, air travel, cell phone service, and electricity.
• Fees apply for park entrances, parking, and recreational classes or events.
• Tariffs apply to imported products like steel, sugar, and cars.
• Tariffs are paid by the person importing.
• Sales tax in Central Virginia, including Charles City, Chesterfield, Goochland, Hanover, Henrico, and Richmond City, is 6%.
• Sales Tax everywhere else in Virginia is 5%.
• Sales Tax in James City County, Williamsburg, and York County is 7%.
• Sales Tax in Charlotte, Gloucester, Halifax, Henry, Northampton, and Patrick Counties is 6.3%.
• Virginia sales tax has reduced rate of 2.5% on groceries and certain essential personal hygiene items.
• Sales Tax for aircraft, watercraft, and motor vehicles are taxed at different rates.

Tax Systems

• The U.S. tax system is progressive.
• Regressive taxes apply to the taxpayer's purchases and is the same rate regardless of income, making taxes paid proportionally higher for lower income earners.
• Progressive taxes are based on income and are proportionally higher for higher income earners, meaning as income increases, a higher percentage of taxes is paid.
• A pro of a regressive tax system is that it allows people with different incomes to pay the same amount of tax.
• A con of a regressive tax system is that it burdens lower income earners as they pay a higher percent of their income on taxes than higher income earners.
• Proportional tax applies the same rate to all taxpayers regardless of their income.
• A proportional tax is also called a flat tax.
• With a rate set at 20%, a taxpayer making $10,000 pays $2,000, a taxpayer earning $50,000 pays $10,000, and a millionaire pays $200,000.

Tax Dollars

• In 2020, approximately 10% of federal spending went toward paying interest on US debts.
• Military and defense spending have decreased the most since 1962.
• Health spending has increased the most since 1962.

States Taxes

• All State Government Taxes by Category in 2018:

• Selective Sales taxes: $165B

• Total Income Taxes $440.3B

• License Taxes: $57.4B

• Property Taxes: $20.1B

• Other Taxes: $30.9B

• Total Taxes are $1.03T

Tax Forms

• It is important to know what forms you need when filing your taxes to avoid incorrect reporting and penalties.
• The W-4 form is received whenever you start a job.
• The purpose of the W-4 is to list information about yourself and your family on the form.
• W-4 determines how much money gets taken out of each paycheck.
• The I-9 form is received whenever you start a job and proves you are eligible to work in the U.S.
• The purpose of the I-9 is to prove identity using forms of identification when submitting this form.
• The W-9 form serves the same purpose as an I-9 but for self-employed tax payers.
• The W-2 form is received from your employer in January, one for every job you work, and shows gross income, taxes paid, and deductions.
• The 1099 form is received in January if you are not an employee but were paid by a company.
• With a 1099, one probably didn't get taxes withheld, you may expect a big tax bill.
• The 1040 form must be completed every April (April 15) and anyone can use this form.
• In order to file taxes, you will need your name and address, social security number or tax ID number, W2 for each job worked, and forms 1099-MISC/Schedule K-1 with income records.
• The 1099-MISC reports earnings as an independent contractor.
• For the self-employed, be prepared to have records of all work-related expenses like check registers or credit card statements, and receipts.
• Business-use asset information is for depreciation.

Other Tax Forms

• A 1099 form reports the type of income you received in a calendar year other than the salary from your employer.
• A 1099-INT indicates the amount of interest you earned from a financial institution, such as a bank.
• A 1099-DIV indicates the amount of dividends you received from stocks, bonds, mutual funds, etc.
• You receive a 1099-OID form when you buy or hold a bond.
• With a mortgage, one of the IRS forms received is in the mail or inbox, showing the interest (over $600) you paid on your home loan during the past year called is the 1098 Mortgage Form.
• Students receive get a 1098-T, which reports tuition payments they've made, or a 1098-E, which reports the interest they've paid on their student loans.
• Student loan interest and tuition payments may also be deductible.

Important Tax Terms

• Incentives make someone want to do something or work harder.
• Examples of incentives include bonuses, learning seminars, and recognition.
• Employee benefits are types of non-wage compensation provided to employees in addition to normal wages or salaries.
• Mandated employee benefits include Social Security, Workman's Compensation, and unemployment insurance.
• Optional benefits that employees give include health care insurance, disability insurance, life insurance, retirement/pension plans, flexible compensation, and paid leave.
• The Federal Insurance Contributions Act (FICA) is composed of social security and medicare.
• An employee pays some of the FICA tax while an employer contributes also.
• Social Security pays old age benefits as well as covering the disabled, minor children, and surviving spouses of deceased workers.
• Medicare pays for hospital insurance for those over 65.
• A tax deduction is a donation or expense that reduces the taxable income amount, and is either standardized or itemized.
• Deductions reduce gross income to reduce the amount of income taxed.
• The 2024 standard deduction is $14,600 for single filers and those married filing separately, $29,200 for those married filing jointly, and $21,900 for heads of household, and is claimed on tax returns filed by April 2025.
• Based on a $100,000 Gross annual income, the new gross adjusted income is $85,400 after a standard deduction.

Tax Credits

• Tax credits are preferable over deductions because they cut tax obligations dollar for dollar.
• Governments may grant a tax credit to promote a specific behavior, such as replacing older appliances with more efficient ones, or to help disadvantaged taxpayers by lowering total housing costs.

Tax Filing

• You must file a federal income tax return if you are a U.S. citizen or resident alien and it depends on your gross income, your filing status, your age, and whether you are a dependent.
• If you do not expect to owe income taxes, you can mark yourself as EXEMPT on your W-4 form when you start your job to avoid having income taxes withheld.
• Social Security and Medicare taxes (FICA) will still be withheld.
• Dependents are either a qualifying child or a qualifying relative of the taxpayer, but a taxpayer's spouse cannot be claimed as a dependent, and must meet certain conditions.

Tax Deadlines

• Everyone must file taxes by date April 15, unless you file for an extension (via Form 4868).
• The due date in April 18, 2023.
• To get IRS tax forms, visit the IRS website to download PDFs, call the IRS and ask to have forms mailed, use good tax software, use IRS Free File program, check the library or post office, or visit a local IRS office.