Every working American citizen is bound to pay some percentage of the income in the name of taxes, while some taxes are payable with every purchase. Benjamin Franklin said only tax and death are permanent. It is impossible to avoid taxes when buying something, be it a property or a small beverage. The government at both the federal and state-level benefits from our tax dollars. Taxes are supposed to be used to fund the government and their projects. Here are types of taxes and deductions every taxpayer should know about.
Tax Types
Property Tax
According to what every other country imposes a tax on property, property tax is the specific tax that is charged annually for homes and real estate. In the USA specifically, the property tax rates are lower than in most other countries. Taxes in the USA also differ from state to state. There are two kinds of taxes, one at the state level and the other at the federal level.
Sales Tax
Sales tax is the tax charges at the point of sale of goods and services. Sales taxes are by each state and vary depending on the items purchased. General sales tax may be different than what is charged for alcohol and tobacco products.
Income Tax
Every working American citizen has to pay income tax. Income tax is calculated based on an individual’s annual or sometimes quarterly income, depending on the profession.
Capital Gain Tax
The capital gain tax is the tax charges after the sale of non-inventory goods. It is almost 15% in the US, but this tax can vary to some degree from person-to-person. If someone pays income tax up to 40%, then the payable capital gain tax will be 20%.
Value Added Tax (VAT)
The value-added tax varies from country to country. It is the tax that is added at different stages of the production of goods. It is only done if the value is added to the product at the stage.
State Tax
The state tax varies from state to state. Some states, such as Texas, don’t have state taxes. In many states that do not have a state tax, the state uses other means to fund the government. For example, Texas, again, the money people pay to purchase lottery and other legal gambling sources.
When paying taxes, it is important to keep it to a minimum to least impact your income. Here are some ways you can save on your taxes.
Tax Deductions
Income Tax deduction
A tax deduction refers to the deduction of expenses or purchases that are tax exempt. There are certain commodities on which taxes are not applicable and therefore exempted. Some of the purchases and expenditures that are tax-deductible are listed below.
Charitable Contributions
Charity is in the category of tax-deductible spending. It can be a small amount or a substantial sum and is used by many as a tax shield. Mostly all the welfare states declare charity as a non-tax applicable expenditure. For example, if you are finding clothes for an orphanage or are sending some toys as a charity, you can mention it in your tax file. It will be declared tax-deductible; make sure to save the receipts and other such evidence of your expenditure.
Volunteering
If you are volunteering for a government event or a state-recognized charity, then the amount you pay for any such purpose is tax-deductible. For example, if you hire a babysitter while working as a volunteer and it comes under a charity event, the amount you pay to the babysitter is tax-deductible.
Teaching Materials
Teachers spend a lot of effort and time imparting their knowledge and skills for their students’ bright future. Teachers also spend some amount of the money on teaching materials, such as color recognition tools, crayons, and other stationery. All K-12 teachers are allowed a $250 tax deduction for such expenses.
Military Moving Expenses
Whatever you spend on getting a new job is not tax-deductible. However, if military personnel is moving due to military orders, the expenses are tax-deductible and must be mentioned during tax filing.
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