July 24, 2020

Different Types of Taxes and How to Minimize Them | David Gene Neugart

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Income taxes may be on your mind during this time of year, but they’re not the only taxes you’re required to pay. Americans are on the hook for several different types of taxes throughout the year.

While most of us would prefer to minimize the taxes we pay – or not pay any taxes at all – the truth is that paying taxes conveys several important benefits. Still, nobody wants to pay more than their fair share. Fortunately, there are opportunities to reduce your tax burden and spread out the impact taxes have on your overall financial picture.

Here are five types of taxes you may be subject to at some point, along with tips on how to minimize their impact.

1. Income Taxes

Most Americans who receive income in a given year must file a tax return. Only if you earned less than the IRS-designated gross income limits can you forego filing a federal income tax return? For 2018 returns (those filed during 2019), the gross income limits are as follows:

  • Single: $12,200 ($13,850 if age 65 or older)
  • Head of Household: $18,350 ($20,000 if age 65 or older)
  • Qualifying Widow(er): $24,400 ($25,700 if age 65 or older)
  • Married Filing Separately: $5
  • Married Filing Jointly: $24,400 ($25,700 if one spouse is age 65 or older; $27,000 if both spouses are age 65 or older)

2. Excise Taxes

Speaking of excise taxes, you pay when you buy certain items, and they are often included in their costs. So if the product you buy taxable sales, you probably will pay taxes on taxes. A common example is the federal gasoline excise tax of 18.4% (24.4% on diesel fuel). The state also imposes excise taxes on gasoline, which became the highest California at 61.2 cents. Alaska lows at 14.66 cents.

excise tax is also imposed on products such as tobacco and alcohol, and activities such as betting, the use of the road by a truck, and a tanning salon. Some governments impose an excise tax on home sales, which are usually paid by the seller. excise tax is not a sales tax, so you can not claim them as an itemized deduction on your federal tax return.

3. Sales Tax

Otherwise known as a consumption tax, a sales tax imposed more heavily on the rich simply because the more you eat, the more you are taxed. Because the sales tax assessed as a percentage of the product or the sale price, it is a simple equation: The more you buy, the more you pay.

The federal government is not involved in setting the sales tax rate. Instead, each state and the local government established itself. If you've been traveling the country at all, you may have noticed that the sales tax varies from place to place. Every state except Alaska, Delaware, Montana, New Hampshire, and Oregon assess sales tax.

While income tax is considered as a progressive tax (the higher the income, the higher your tax rate), the sales tax is regarded as a regressive tax (the tax rate is the same, regardless of your income).