While many people hate taxes they are needed to help pay for common services including schools, hospitals, and roads. Government employees also get paid using taxes. There are some common tax laws that people have to be aware of in order to meet their legal obligation and not overpay more money then they have to.
Taxes are collected through the IRS and are based on income.
The United States collects taxes through payroll, sales tax, and real estate tax. At the end of the year, every person must file their income tax return showing how much money they earned and how much money in taxes was taken out of their paycheck during the year. There are several areas of income that can be taxed. This includes wages a person made from being employed. A person that works for tips also has to pay taxes on the amount of money that they make with the tips. If a person works on the commission this amount is also taxable. People that have received unemployment compensation during the year have to pay taxes on this money. They can have the taxes deducted from each payment they receive or they can wait until the end of the year to pay this money in taxes. People also have to pay taxes on any interest they earned due to investments. If they earned money from rent or the sale of the property the government wants their share of this is taxed. Gambling winnings are able taxable.
There are certain things that a person can do to legally reduce the amount of taxes that they owe. If a person contributes money to a retirement account such as a 401 K or an IRA this will reduce the amount of taxes that they owe. There are some things that a person can also reduce their income. Children are a big tax deduction. A person with a child can deduct several thousand dollars per child. A person can use the standard deduction that is offered by the government or they can choose to itemize specific deductions. In some cases, the standard deduction may be greater than the itemized amount. Some other items that can be deducted off the taxes include mortgage interest rates, charitable donations (with proper documentation), and medical expenses.
A person has to be truthful about their taxes. If a person fails to file an income tax return or if they knowingly lie on their taxes then a person is in a lot of trouble with the government. They can be facing jail time as well as a fine. Tax evasion is a serious crime and a person will be punished if they do not pay their taxes. Everyone has to pay their share.
When a person has a question or an issue with their taxes, they should see an accountant. An accountant is paid to keep up to date on the new information regarding taxes and legally help a person reduce their tax liability.