TABLE OF CONTENTS
- Introduction
- Taxes—What are They?
Types of Taxes
What are Taxes Used For?
Government Agencies that Enforce Tax Laws - Doing US Taxation—the Pros and Cons
- Conclusion
- FAQs
INTRODUCTION
The federal income tax system of the United States has been in place for more than a century. Furthermore, it’s been a subject of controversy and debate throughout its history. Nevertheless, the system is necessary to fund and finance public and government services that best serve the citizens.
Honestly, nobody likes paying taxes. The reality, however, is that taxation is used to acquire resources and funding for the US government to deliver essential services to the people. Taxes go to health care, social services, and schools in the country. Taxation is more than revenue, it’s a tool for development.
TAXES—WHAT ARE THEY?
To put it simply, taxes are the amount of money paid to the government to collectively fund spending for public services and goods. Taxes are also used to fund things, which include roads, schools, and various public programs, including Medicare and Social Security. Individual citizens and corporate entities are required to pay taxes, be it at a local, state, or federal level
The taxes paid by business entities and people are entrusted to the federal government to provide a positive impact on society while using every dollar most efficiently. Every year, countries that rank in the top ten of the happiest worldwide are those with the highest tax rates.
TYPES OF TAXES
There are three basic types of taxes.
- Income Taxes. The sources of income you earn incur taxes. These include taxes deducted from your paycheck. They are major revenue sources for the government, some local governments, and most state governments.
- Sales Taxes. Taxes that consumers pay when buying goods and availing of services. Furthermore, these taxes provide local and state revenue, funding various services, which include health care, transportation, and education.
- Property Taxes. Taxes that generate revenue on a local level. They provide funding for infrastructures, such as public safety services, parks, and additional funding for schools.
What are Taxes Used for?
Again, taxes fund government spending on public services and goods. The following are some of the ways that taxes are used at the federal, state, and local levels:
Federal
- National Defense
- Social security
- Economic security programs
- Health insurance, such as Medicare, and others
- Veterans and federal retirees’ benefits
- Education
- Agriculture and Natural Resources
- Economic security programs
- Law enforcement
- Interest on Debt
- Medical Research and Science
State and Local
- Elementary and Secondary Education
- Higher Education
- Public Welfare programs
- Highways and Roads
- Health and Hospitals
- Corrections
- Housing
- Law Enforcement
Government Agencies that Enforce Tax Laws
The United States has federal, state, and local tax authorities that enforce tax laws. The IRS, or the Internal Revenue Service is responsible for collecting most domestic taxes, including income taxes. Every US state has its tax administration subject to the rules and regulations of the state.
In most states, these authorities are referred to as the Department of Taxation or the Department of Revenue. The majority of localities maintain a tax administration or share one with nearby localities.
Doing US Taxation—the Pros and Cons
The Pros
1. Save Money
Hiring an accountant or an enrolled agent can be expensive, and you can save a substantial amount if you do US taxes yourself. Moreover, anyone can file electronically for free via the Internal Revenue Service website.
2. Acquire Financial Insight
An added benefit is that it will give you a closer look at your finances. You will have an insight into the effect that some saving options have on your tax return. Moreover, you also learn to max out your IRA contributions every year to take full advantage of the credit.
3. Peace of Mind
Tax accountants could be overloaded during the tax season; thus, you can’t be certain of their full concentration on your tax return. Moreover, you could make a mistake communicating pertinent information, such as failure to inform your accountant or tax preparer of key deductions, for instance.
Nonetheless, if you have a complicated return that requires filling out and filing several forms, make it a point to have a complete understanding of the entire process.
The Cons
1. Will Take Time
When you file your taxes, you have to allocate a significant amount of time to it. The US Tax code can be difficult to understand and complex. You have to organize and prepare all the necessary documents, such as your W-2, 1099s you may have, and others.
2. Risk of Error
By filing a tax return on your own, there could be a risk of error. By doing it yourself, you alone are accountable for your tax return.
3. Insufficient Online Help
Even if you use tax preparation software, you may find yourself uncertain as to whether you qualify for a deduction or otherwise. Health insurance premiums, for instance, are an allowable deduction in some instances, but not all. If you qualify but fail to take the deduction, you could miss out on more savings. On the other hand, if you do take it and it turns out to be wrong, it could cause you penalties and interest charges.
CONCLUSION
In the management of your finances, paying taxes is an important aspect. There are several kinds of taxes and they have their requirements. What taxes apply to you and how and when you’re going to pay them should be your main consideration. A qualified and certified tax professional, such as an Enrolled Agent, could guide you and provide you with more information.
FAQs
Q. Can I file my tax return electronically?
Ans. For free, you can prepare and file your income tax return electronically. There are software companies that make products available via the IRS.
Q. What is a Tax Refund?
Ans. A tax refund is a call for celebration. In reality, however, refunds mean that you paid more income tax than necessary. The state or federal government will refund the excess money you paid.
Q. Who can represent clients before the IRS?
Ans. An enrolled agent and a certified public accountant can represent clients before the Internal Revenue Service.
Q. Why is the US tax law and filing system complicated?
Ans. This is because the tax system of the United States is trying to do more than collect taxes. Congress makes use of the tax system as a tool to achieve social and economic goals and relies on the besieged IRS to execute these plans.
Q. How do I file my income tax return?
Ans. You need forms and receipts showing the money you earned as well as your tax-deductible expenses paid. These forms and statements include the W-2 form from your employer or employers, other earning statements, receipts for charitable donations, medical and business costs, and so on.
Q. What are the benefits of paying US taxes?
Ans. Taxes provide income for the government, be it local, state, or federal. Moreover, taxes fund essential services, including highways, education, defense, and so many more that the citizens benefit from.
Q. When is it a good time to hire a tax professional?
Ans. When your taxes are complicated, then your best bet would be to hire the services of a tax professional. This is particularly true after a major change in your life occurs, such as getting married, having a baby, getting divorced, selling a business or home, and many more.