The ABCs of taxes

Believe it or not, this is my number 1 question from college students.  It was a little outside of my expertise, but I decided to add a lesson on the subject to my classes due to significant demand.

What exactly do I need to know about taxes?  Well, for starters, everyone hates them, but on the flip-side – it has been said that taxes are the price we pay to live in a civilized society.

When all is said and done, the average American pays 29% of their income each year on taxes. Luckily, almost all of it is taken out when you get money, or are making a purchase. If you own a home, property taxes have to be saved up for, but the rest is kind of built in to your spending.

Below are the basic types of taxes:

Income taxes

  • Payroll (salary income)
  •  Capital Gains (investment income)

Inheritance/gift taxes

Property / Real Estate tax (homeowner pays, renter has it built into their rent)

Taxes on goods and services

  • Sales tax (why the price of an item is always greater than the sticker price)
  • User fees (hotel/airline/toll road)
  • Excise taxes (gas – charged based on quantity, not price)
  • Sin tax (alcohol/gambling/tobacco)
  • Luxury Tax (expensive cars or jewelry)