Written by Carrie Johnson (former SDSU Extension Family Resource Management Specialist).
Taxes provide the revenue that finances government programs at all levels, with income and payroll taxes the largest federal revenue sources.
What is the purpose of taxes?
- Support schools
- Support building
- Maintain roads
- Provide for the nation’s defense
Several Kinds of Tax, Collected at Several Levels
The U.S. tax system encompasses at least six different types of taxes (income tax, Social Security tax, sales tax, and personal property tax) and three layers of taxation (local, state and federal).
Personal income tax: The individual who earns the income must pay tax on that income. It is paid to Federal, State and sometimes Local Government. Taxes are paid on salary, wages, tips and savings and investment income. Taxes help pay for the overall costs of governments.
Sales tax: The amount of sales and taxes we pay is based on our purchase of certain goods and services. Applies to most products we buy.
Social security tax: Provides disability and retirement benefits for most working people. The changes in the tax rate and in the amount of income taxes have made social security taxes a growing burden on working families.
Property tax: Is a tax on real estate such as property, home, or some other building. Property tax are an important source of revenue for the local government.
Estate and gift taxes: Are a tax on wealth passed on from one person to another. Estate taxes cover wealth that changes hands at the death of the wealth holder. Gift taxes cover transfers of wealth from one living person to another.
Excise taxes: Applies only to specific goods such as tires, gasoline, cigarettes, liquor, and fur. A lot of excise taxes illustrate the benefit principle of taxation. One example is on gasoline, the people who buy the most gasoline use the roads the most. The tax money is used to repair the highways.
- Delayed payment of Federal Estate Taxes: Farmers and small-business owners often fear that their loved ones might have to sell the family business to pay death taxes. In reality, the probability of a forced sale solely to pay estate taxes is small for three reasons.
- Smart Uses for Your Tax Refund: Get the most out of your tax refund by developing a plan. Make a commitment to enjoy part of the money.
- Getting the Most from Your Tax Refund: The decisions you make at tax time determine how much of the refund money will reach your wallet. These suggestions can help you get the maximum benefit from your refund.
- IRS: Get info on filing your taxes, refunds, forms and help and other resources.
- Free Tax Return Preparation for You: The IRS Volunteer Income Tax Assistance (VITA) and the Tax Counseling for the Elderly (TCE) Programs offer free tax help for taxpayers who qualify.
- Tax credits and tax deductions: One of the most effective ways to lower your income tax bill is to claim tax credits and tax deductions for which you are eligible.
- eXtension: Helps you figure how much to take out for income tax with holdings.
- Investopedia: An easy searchable site on a variety of topics including personal finance and taxes.