There are two things guaranteed to all Americans; Death & Taxes. We’ve all heard this saying right? Taxes are for better or worse, a way of life. We all empathize with the demoralizing feeling of seeing taxes deducted from your paycheck leaving you with much less than anticipated. Furthermore, with the subject of tax reform dominating the conversation within our nation’s government, it is more important than ever to understand the cause and effect of taxation. Many suggest that the wealthiest individuals in this country possess a well versed knowledge of tax code. Take this as our first step in understanding the complex world of taxes.
So what are taxes? To put simply, taxes are required contributions to the government. Now, it might be hard to believe, but the government doesn’t generate its own income. The government gets its income from taxpayers (us!). The government essentially uses taxpayer dollars on things like schools, military & roads. So who collects our taxes from us? A government agency called the IRS, which stands for “Internal Revenue Service”.
The IRS is a government agency that is responsible for collecting taxes (required contributions) & enforcing tax law. The IRS typically takes a portion of your one’s income which includes but is not limited to salaries, bonuses, tips and unearned income. So you may be asking yourself, why do people pay different amounts in taxes? The answer lies in a little thing we call: taxable income. Taxable income is the calculation of the amount you need to pay to the IRS (also known as, your tax responsibility). The amount of money you pay in taxes varies greatly; having children or owning a business, for example, affects the amount of money the IRS deems “taxable”.
This is just the beginning when it comes to understanding taxation. We could spend hours explaining the idiosyncrasies of taxes, but for now, we hope this introduction was a light and easy intro to taxes. Understanding taxes isn’t exactly something you’d want to do on a Saturday night, I know. But let me put it to you this way, understanding taxes could be the difference between owing the IRS thousands of dollars, or the IRS giving YOU thousands of dollars back. The wealthiest individuals aren’t always the most brilliant and gifted minds or athletes. In most cases, the wealthiest individuals have one commonality; a solid understanding of taxes and tax law.
We’ll have more articles on taxation in the future so be sure to visit us daily for new articles written specifically for you. #BuildYourNest