Every year, Americans endure what we call ‘tax season’. And every year, Americans feel like Paul Revere himself because in 1770, some British chancellor thought the original colonies would be ok with taxes on their tea. And so began the Boston Massacre – as well as the American perception on taxes.
But today is not a rundown of tax history. It’s a day for stepping back, and figuring out just what the heck taxes are, and what you need to know when filing.
The first thing to note is ‘why pay?’ to begin with. Essentially, we pay taxes for infrastructure. Each angry look we give our W-4 is the amount we “lose” that goes to the collective piggybank of police, firefighters, legislators, judges, roads, parks, bridges, school programs, and interstates. Whatever your political affiliation, or opinions, these are the broad strokes – we pay taxes because that’s the price of belonging to a community.
The Boring Part of What to Know
I promise to make this quick. Taxes are divided up into different categories. If you have a job – regardless of how fulfilling it is – you will pay an income tax. If you have a home – regardless of whether or not it could star in an episode of MTV Cribs, or Hoarders: Buried Alive – you will pay a property tax. As a buyer of things – regardless of whether or not you spend at Saks Fifth Avenue or Walmart – you will pay a sales tax. If that’s not enough, these taxes will be different depending on where you live.
Taxes are obviously not that simple, but below is a useful graph for understanding how taxes break down for each state. Some states weigh sales taxes more heavily (like Washington), some weigh property taxes more heavily (like Texas), while others weigh income tax more heavily (like Oregon).
Knowing something about your state’s taxes are useful in knowing where your career is best served. What is the average commute? Is the state better for an aging population, or a younger population? What is the medium income? And are there are weird asterisks to what you can or can’t be taxed on?
As boring as taxes are, they’re actually quite dynamic. Laws constantly change, and states themselves experience enough unique situations with unique consumers to create oddball features such as:
- No sales tax on whole bagels (New York).
- No sales tax on candy without flour (Illinois).
- No sales tax for livestock feed (Tennessee).
- $15 fees for sparklers and party poppers (West Virginia).
And so forth…
What to Know About Filing
Now that you know something about taxes, perhaps you need help filing them. The main thing is to find a place you can trust. It’s a good idea to pay extra to have your tax return stored (this way, each year filing is hopefully a little easier). Whether or not a tax-prep company is expensive should be merely one factor among many in deciding who to use. You’re doing a lot of things at once; making sure to document your finances, seeing how that documentation can save you money and get the best return, and making sure you’re following the law.
The tax-prep company you choose should have multiple services, different packages (if you run a small business, the company will need to offer what’s called a Schedule E), and quality tech support (as taxes become increasingly electronic, it’s more critical that companies help consumers travel the digital tax world) and advice.
For example, when you fill out your W-4 (which is for anyone who gets a paycheck), pay close attention to your allowances. Allowances will cut the amount of taxes you end up paying – such as having a spouse, kids, claiming head of household (which is categorized as unmarried people who pay half the cost of housing for someone else/or others), and what’s called a Child Tax Credit, where your tax bill can be reduced by $1,000 per child if you meet various requirements (such as age, support, relationship, dependent status, length of residency, and family income).
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