Posts Tagged ‘taxes’

Hidden taxes?

Wednesday, September 23rd, 2009

You wouldn’t think you could pay taxes without knowing it, but it actually happens all the time. So-called hidden taxes are taxes on goods and services that you, the consumer, end up paying for. They’re taxes that are charged before the product or service can be purchased, and the seller just adjusts for the tax by hiking up his or her prices. So the government gets the tax money, the seller fixes things so he or she can turn the same profit, and the consumer faces a bigger price tag in the end.

You aren’t aware of hidden taxes because they’re indirect – they can take the form of import or export taxes, sales tax, excise duties, value added tax, and more. What’s more, indirect taxes can be a sneaky way for government officials to raise revenue: if they raise, say, income taxes, everyone notices and complains, but if they raise indirect taxes, people still end up paying more, but it tends to slip under their radar.

However, some people don’t like this practice because they argue indirect taxes aren’t progressive – that is, they don’t take ability-to-pay into account the way income taxes do. If prices for consumer goods go up, that price hike is usually small change for the very rich, but for less wealthy individuals, a price increase on goods they need can make a sizable dent in their budget. For example, an added standard import tax on coffee impacts everyone who drinks coffee, rich or poor. So even though indirect taxes aren’t illegal or even truly hidden (the sellers who have to pay them can certainly see them), some people still consider them a way to increase their tax burden behind their backs.

Why do you need to keep records of your charitable donations?

Wednesday, September 23rd, 2009

The government is prepared to award you tax deductions in return for your charitable donations, but it’s up to you to prove those donations were actually made. The IRS requires a great deal of documentation to ensure that all your donations are legitimate, so it’s essential to keep good records and make sure your chosen charities received everything you gave them. The specific requirements for tax deductions are as follows.

If your donation was money, you need to provide a credit card statement, canceled check, or bank statement that details how much, when, and to whom you donated, as well as written acknowledgment from the charity of how much you paid them and when. If your donation was more than $250, the acknowledgment letter should also include whether the charity gave you anything in return for your donation, and if so, the approximate value of the services rendered.

Property donations also get you tax deductions, but the records you keep have to be much more detailed. Every property donation can be tax deductible only if at least the following records are provided: the name and address of the charity, the date of the donation, a description of the property and its location, an estimated value for the property and how you arrived at that number, and the amount you want to be paid as a tax deduction. If the property is worth more than $250, there are even more rules:

  • For property donations from $250-$500, you also need an acknowledgment letter from the charity.
  • From $500-$5,000, you must document how and when you acquired the property, as well as how much it cost you.
  • If you estimated the property’s value at more than $5,000, you need a qualified appraiser to verify your estimate.

It’s important to keep records of all of the above, as well as any additional documents that can help prove you actually made the donation. If any piece is missing, you probably won’t get any money back.

A Tariff is…

Friday, August 21st, 2009

A tariff is a tax placed on imports.

A Proportional Tax is…

Thursday, August 20th, 2009

A proportional tax is a system of taxation in which individuals are taxed at the same rate regardless of their income level. So whether you make $25,000 a year or $3,000,000, you’re still paying the same percentage of that amount in income taxes. The U.S. uses a progressive tax system for income tax purposes.

A W-9 is…

Monday, August 17th, 2009

A W-9 is an IRS form that companies use to collect and verify tax information from freelance and other temporary workers. It’s just a tax record and verification for the company so it can keep track of everyone who it has paid – the IRS wants to know about a person, even if he or she worked for only two days.

Taxes are…

Monday, August 17th, 2009

Taxes are payments owed to the government for certain items, earnings, or activities. Because the government uses taxes to finance projects that benefit the general public, if you are in the country, you have to chip in.

How does Social Security work?

Monday, August 10th, 2009

Everyone who works has to pay Social Security taxes on their earnings. Employers and employees pay social security taxes, and self-employed individuals pay twice as much, being both employer and employee. You pay Social Security every year for as long as you work.

So what do you get in return for shelling out all this money to the government? Once you stop working for a legitimate reason, like retirement or injury, the government supports you with the money that was collected in Social Security taxes. In addition, because you were the one paying all those taxes for so many years, you don’t have to be in desperate need of funds to qualify for Social Security – you have a legal right to those benefits.

There are certain terms and conditions, of course. People who earned more money throughout their lives paid more money in Social Security taxes, so they have a right to higher benefits. However, Social Security is weighted in favor of workers with lower lifetime earnings and workers with families to support. This means that even though the wealthier may get higher absolute benefits, low wage earners get more money relative to how much money they paid throughout their lives. The goal of Social Security is to prevent those who have stopped working from becoming poor, but it isn’t a charity: you’re paying the government when you’re young and healthy so you can use that money when you’re not.

Value Added Tax is…

Wednesday, August 5th, 2009

Value added tax is a tax levied on commodities after they go through production to reflect the increase in value. For example, a cake is made out of many ingredients, but the finished product sells for more than the sum of its parts, so the company selling the cake pays value added tax on this price increase. However, since sellers usually just hike up their prices to compensate for value added tax, it’s the consumers who really pay it in the end.

An Excise Tax is…

Wednesday, August 5th, 2009

An excise tax is a tax on commodities made and sold within the same country (as opposed to the import tax on goods from other countries).  For example: environmental taxes, and fuel taxes

A Joint Tax Return is…

Monday, August 3rd, 2009

A joint tax return is a tax return that both members of a married couple file together (or jointly). It combines the incomes and tax deductions of the two spouses.