Trying to stay within the theme of Budget Stretcher, I thought a series of articles on knowing where your money is going may help some of you understand just how much you pay on certain expenses.
I've decided to start this series of articles with information about the amount and type of taxes you pay. I won't be able to cover all of the types of taxes that are paid by Americans because that would turn this article into a book. I'm just going to list a few of the most common taxes that most of us have to pay.
How much do you pay in taxes every year? I can bet many of you don't have any idea. You may think you can just look at your tax forms for last year and have the answer. I guarantee that would be just the beginning.
Just take a look at the below list of various taxes and do the math yourself:
Federal Income Taxes -- Uncle Sam is currently taking between 15% and 39% of our Adjusted Gross Income to pay for what ever it is that they spend money on in Washington. The main point I want to make here is that many people feel that because they received a refund, they didn't pay any taxes. For some people, this is true. However, the vast majority of people that receive a refund are just getting back the money they already paid in through withholding, minus the taxes they owed. HOW MUCH DID YOU PAY LAST YEAR?
Income Tax Preparation -- Yes, I consider the cost of having our taxes prepared by a professional as a tax. If the federal tax code was published in English, maybe more of us could prepare our own taxes.
Social Security -- 15.3% of your income goes directly to the federal government for social security and medicare and is conveniently deducted from your paycheck. The myth about your employer paying half is just that. If you weren't required to pay social security, that is another 7.65% that your employer could pay you.
Sales Taxes -- Unless you live in a state that doesn't have a state sales tax, this costs you around 6% to 7% of every penny you spend. Wouldn't it be nice to buy something for $99.95, hand the clerk a $100 bill and get a nickle back.
Property Taxes and Real Estate Taxes -- These taxes can run into the thousands of dollars a year. I know, there are some places you aren't required to pay these taxes either, however, you can bet they get this money in other ways. Before you renters start smiling, remember that your landlord has to pay these taxes. Want to guess where he gets the money?
The Other Guy's Taxes -- What do you mean "The Other Guy's Taxes"? He can pay his own. For each item you buy, the manufacturers and distributors have expenses like the cost of production, packaging, shipping, etc. They also have to pay taxes. Who do you think actually winds up paying these expenses? If you buy it, you do. I have seen estimates that between 20% and 25% of the cost of most items is for taxes that they have to pay. To make a profit, all companies must pass all expenses they have along to the consumer.
Gas Tax -- Federal gasoline taxes are over 18 cents per gallon and state gasoline taxes are as high as 44.5 cents per gallon. That means up to nearly 63 cents per gallon of gas goes to taxes depending on where you live (2007 figures).
Self Employment Taxes -- This is simply the way a self-employed person pays their Social Security and Medicare. They are required to pay 15.3% of their gross income to cover these expenses. These are the people that really know how much taxes they pay. This is because they are required to write a check for them four times a year and, if they underpaid throughout the year, they may have to write another check on April 15th.
When you look at your budget and wonder where all of your money is going, you may want to consider what you are paying in taxes. There are taxpayers in this country that are paying over 50% of their income in one tax or another.
Here are links to a couple of other articles I've written on taxes:
I'm not trying to make a political statement here. I just believe that everybody should be aware of where their money goes. If you take a few minutes to think about it, I think you will realize that a good percentage goes to the federal, state, and local governments.
Terry Rigg is the author of Living Within Your Means -- The Easy Way and editor of the Budget Stretcher Web site. To Subscribe to The FREE Budget Stretcher Newsletter and receive The Complete Budget and Bill Organizer absolutely free just visit his home page at http://www.homemoneyhelp.com.© 2008 Terry Rigg
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