How Taxes Operate and Influence Your Life

One of Benjamin Franklin’s most iconic quotes is “In this world, nothing is certain except death and taxes”. Unfortunately, for us, he’s correct. No one can evade death, and no one can successfully evade taxes. The moment you start your first job will most likely be your first interaction with taxes.

We all have to pay taxes; we cannot ignore them. We all have to do our part!

Taxes are mandatory payments that are collected by local, state, and national governments from citizens to businesses.

Taxes are supposed to go to government public services such as social security, government-based health insurance, and national defense services. While it’s highly debated where our taxes go, they are supposed to be for the good of the people.

So, let’s discuss the different type of taxes we will encounter. There are three basic type of tax systems:

• 1. Progressive Tax System
• 2. Regressive Tax System
• 3. Proportional Tax System

Progressive Tax System

In the United States, progressive tax is when an individual’s tax rate increases as their income increases. This can be seen in the form of tax brackets.

For example, someone who makes $0 to $11,600 and is filing as single, would have a tax rate of 10%, whereas someone who makes $609,351+ and is filing single, would have a tax rate of 37%. This is progressive tax.

Regressive Tax System

In a regressive tax system, when an individual is categorized as being low-income, they are taxed more than those in the high-income group.

This can typically come in the form of taxing tobacco, alcohol, travel, jewelry, etc. Basically, things we often purchase.

Proportional Tax System

A proportional tax system uses the same tax rate on everyone regardless of their income. It can give relief to higher earning taxpayers since they wont have to worry about being taxed more. A great example of proportional tax is sales tax. All consumers pay the same tax rate when buying goods.

How to File Taxes

So, now you know about the three main tax systems that operate in the united states. How can you file a tax return and what do you need to do so?

• W-2 - a document provided by your employer that houses all the income details for the year. This is used to file your federal and state taxes.
• Other forms - some other tax documents that you may need include:
• 1098-T - a tax document for students related to their educational expenses
• certificate of rent paid - also known as the CRP is a tax document that shows the amount of rent you paid for the year as well as general rent information
• 1099-G - for individuals who received unemployment for the year

Tax returns can mainly be e-filed through companies like TurboTax. Their tax filing portal can be a quick process as they offer free and paid services.

Most companies nowadays can give you your W-2 virtually and you can upload your W-2 on their portal. It will autofill everything for you, so all you need to do is review and answer the remaining questions honestly.s.

Conclusion

We could go way more in depth with taxes, but remember, these are just the basics. There are several tax specialists out there that can help with more complex tax issues. Understanding how taxes are involved in your life is important.

Written by Doreen Chirwa · My Growing Pains