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Financial Literacy

Financial Literacy

Home Financial Literacy Taxes Shmaxes Range of Taxes from Estate to Travel

Range of Taxes from Estate to Travel

You'd think that taxes were invented by Baskin-Robbins, since there are at least 31 flavors 'em. So if you've seen Forrest Gump, this is the Bubba scene where he lists all the ways you can cook shrimp.

Income Tax

Federal and State and often county; they take a portion of your earnings, usually on a graduated level where they tax the higher portion at a higher rate than the lower portion. That is, from dollar zero to $10,000 of income, no tax (huzzah); from $10,000 to $20,000 the tax is 10%; from $20,000 to $35,000 the tax is 15% and so on. In a number of places, there are County taxes as well, but every State is different. Wyoming and Florida, for example, have no state tax (c'mon retirees!); whereas California has a top rate of over 13%. It is the most expensive place in the country to live.

Real Estate Tax

Buy a house and you... pay. Lots of ways to pay that tax, though. For some, it's a percentage of the purchase price each year. Like in California, for example, the tax is 1.25% of the purchase price of the home in the first year after you buy it, and then the rate goes up with an inflation index, more or less; in other states, like Texas, the home is assessed by a professional assessor—and then a tax rate is applied. In most cases, that tax is deductible against at least some of your taxes.

Gas Tax

Yes, they tax your gas. For your car. If a gallon of gas if 4 bucks somewhere, it's likely that over a buck of that cost was the tax. Why tax so much? Roads. We need roads. That's generally what pays for 'em. And why is the tax at the pump sometimes controversial? It's "regressive"—that is, it taxes poor people with cars at the same rate as rich people, so as a percentage of earnings, the tax poor people pay per gallon of gas is much higher than for rich people.

Estate Tax

Yep, you die; you're taxed. One limb here. A liver there. One lung, please. 

The notion behind estate taxes was set so that generations wouldn't live a life of fully entitled bliss, having not earned their money like grand pa pa. So for a normal estate, over a base amount—like a few million dollars—there are severe taxes which hover in the realm of ordinary income prices (think: well over half). In practice, crafty lawyers have divined myriad ways of setting up legal instruments to get around much of the estate tax issue, but it remains a thorn in the side of the wealthy, and today, even the only-modestly-wealthy who want to transfer enough money to their kids so that, say, college is covered. Or that down payment on their first condo. Stuff like that. As the country splits wider among the haves and have nots, expect this one to be a hot topic.

Investment Gains Tax

Buy a stock for 10 bucks a share, sell it for 30, and you have a $20 gain. Bully for you. But that $20 will be subject to ordinary income tax (very high rate) if you held it less than a year or it was a stock option and not an actual stock. And if you did hold it a year or longer, it will be subject to the rate of "long term gain" tax of 20 + 3.8% for Obamacare.

Thumb Tax

These are the things you stick in the wall to hold up crayon drawings of your little cousin who drew an awesome race car.

Sales Tax

Buy a broach for the girlfriend at Macy's. You thought it was $100. But when you get the bill, it says U O $108. Where'd that 8 bucks come from? Sales tax. It's usually paid to the state in which the object was received;hence a lot of people go to the trouble of shipping their stuff out of state so that the state doesn't take its pound of flesh. Complex laws, but just know that 8 bucks has to come from somewhere.

Corporate Tax

Yep, companies pay taxes too. XYZ Corp. (owned by a million public shareholders) earns $1 billion dollars pre-tax. It pays out in dividends half of its earnings by charter each year. So it is taxed first 25% on that billion; so it has $750 million to pay out in dividends. It pays half of that number or $375 million to its shareholders who then pay, give or take, 30%. The tax paid on that $375 million is $112+ million. So shareholders first paid $250 million at the corporate level and then $112+ million at the personal tax level for a grand total of $362+ million on that billion bucks. Fair? Not fair? The laws for this "double taxation" have gone back and forth over the years and have resulted in many companies choosing not to pay dividends. 

Car Tax

Okay, there are many names for this one, but the basic idea is that if you buy a car, you have to pay tax to, well, buy it. But then you also have to pay a tax to own it. License plate tax. Registration tax. When you add up the numbers, think twice about Uber.

Travel Tax

Staying at a hotel in New York? Well, it's already way expensive—$250 a night is considered "cheap." But you stretch. You're taking in a show and something bad for your cholesterol beforehand and are psyched. But you get the bill when you check out and it's closer to $350 than $250. What happened? You got taxed. Yes, there's purchase tax for renting the room; but then there's an out-of-town-sucker tax just because you're not a yokel. What are you gonna do? Complain? Sleep on the street next time? Oh...wait. There's AirBnB. Yeah. Cool product. Try it.

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