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Taxes on What You Earn

There are a seemingly endless amount of taxes the government takes out of your income. However, that isn’t the only thing you are taxed on by the government. Many variables can be taxed depending on what you earn and how you earn it. This article’s purpose is to inform about the different taxes that are imposed on what you earn.

Taxes on What You Earn

Individual income tax

Individual income taxes are based on things an individual can earn such as wages, salaries, investments, or other variables. Most individual taxes are considered progressive, which means the more income a taxpayer or household makes, the more taxes they need to pay. These various tax rates will kick in at specific household incomes which are also commonly known as tax brackets.

Corporate Income Taxes

Corporate income taxes are imposed by the federal government based on business profits. Business profits are calculated by subtracting the costs of running your business from your net sales revenue. Costs can include a multitude of things like the costs of the goods sold, marketing and advertising, among other general operating costs.

For companies doing business internationally, corporate tax rates vary drastically depending on the country they are operating within. Some countries are considered to be fantastic places to run a business because of their low tax rates, however, this may be affected by an incoming global minimum tax.

Payroll Tax

Payroll taxes are the taxes that are taken out of an employee’s salary to finance social insurance programs.  At the end of each pay period, there will be an amount of payroll tax withheld by their employer from their income. These taxes cover an employee’s contributions to things like Medicare, Social Security, disability and survivor benefits, as well as federal unemployment benefits.

Capital Gains Tax

Capital gains taxes are applied to assets, which are considered anything that is personally owned or used by an individual. This includes but is not limited to stocks, bonds, homes, cars, jewelry, and art. If an asset increases in value, meaning when the price of something an individual owns goes up, that is called a “capital gain”.  The capital gain is not taxed, however, until it is sold for a profit (AKA “realized”), then the individual will pay on the profit they earned.

Wrap Up

Many things can be taxed based on what an individual earns and this is just the tip of the iceberg when it comes to taxes imposed by the government and state. There are also many various taxes on what you buy and what you own. We will be covering these topics in other articles.

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