Taxes could be pretty scary, especially when you have no idea what it’s all about. To help you start out, here are some basic tax facts:
Why should we pay taxes?
Our government has important projects for the benefit of the people which they cannot complete unless they have a budget.
These projects include building schools, building roads, paying government employees, etc. The government obtains funds through taxes in order to supply the budget for these projects.
It is everybody’s duty to pay taxes – individuals, businesses, organizations and companies. The amount of tax a taxable entity owes depends on its taxable income.
Every entity who earns is required to report how much their income is and calculate their tax. However, there are also exemptions and deductions which decrease the amount of tax that the entity owes.
Non-profit organizations, for instance, are exempted from paying tax. However, they are still required to report their income. Recipients of gifts are also not required to pay tax on gifts they received.
Timing of tax payment is also of importance. Taxes on wages that an employee earns and is paid from their employer are withheld from the employee’s check by the employer and submitted throughout the year to the IRS.
Any income that isn’t subject to withholding by an employer should be sent in on a quarterly basis through the submission of a quarterly estimated tax payment. If these estimated taxes aren’t paid on a timely basis, there are penalties and interest imposed on the amounts due.
At the end of the year, if you paid more than your total tax due, the government will refund the balance through a tax refund. If you have not paid what you owe, you will have a balance due and you have up to April 15th of the following year to settle this bill without incurring penalties and interest charges.
The tax system used in the United States is what we call progressive. Simply put, people with higher income pay higher tax rates and people with lower income pay lower tax rates.
Some politicians are supporting a change in the tax system where they propose that we use the flat taxing method where everybody pays the same amount of tax regardless of their income.
Politicians say this will make tax paying for everybody although the people who are against it argue that it would be unfair to ask people with low income to pay the same taxes with people who earn more.
Here’s a list of tax services offered by Newstart Bookkeeping. For more information, call us at 334-246-1164 or send me a message at [email protected]