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Understanding Taxes



Taxes are compulsory levies that individuals and corporations are expected to pay to their governments. In my previous article, I explained what the government uses these taxes for. While the understanding of taxes is crucial for every citizen, some people find the topic complex.  At Dean Roupas and associates, taxes and accounting is what they do. Reach out to them, and they can provide assistance on anything tax-related. In this article, I will help you get a fundamental yet essential understanding of taxes.

How we pay taxes

  • Payroll taxes

Social Security tax is one of the two payroll taxes that both employees and employers must pay. Employees have to contribute 6.2 per cent of their wages in Social Security taxes. In addition, employers match that for a total contribution of 12.4 per cent. In 2013, the maximum taxable earnings were $117,000. Employee contributions were reduced to 4.2 per cent of salaries in 2011 and 2012 as part of a payroll tax vacation. This was meant to encourage individuals to spend more and help improve the U.S. economy.

Medicare is subject to a similar tax. Employees and employers must each contribute 1.45 per cent of their wages, totalling 2.9 per cent, to fund the scheme. There is no maximum taxable wage, unlike Social Security. Since last year, workers earning more than $200,000 have had to contribute an extra 0.9 per cent of their salaries to the scheme.  When one is self-employed, they are expected to pay an equivalent of both the employee and employer portion of payroll taxes. This is done through self-employment taxes. These taxes also go towards funding Social Security and Medicare.  If you are self-employed and unsure about how to go about your taxes, Dean Roupas is the person for you. He has been in the tax field for over 25 years, and he will help you understand everything you need to know so that you do not end up paying more than you should towards taxes.

  • Corporate taxes

A corporate tax is primarily a tax imposed on a company’s profits. This is levied on a company’s taxable income. This comprises revenue less cost of goods sold (COGS), selling and marketing, general and administrative (G&A) expenses, R&D, depreciation, and other operating costs. Dean Roupas Palos IL, has been working with companies for over 25 years, ensuring that their taxes are in order and in accordance with the federal expectations.

Corporate tax rates differ significantly by country. As a result, certain countries are being regarded as tax havens due to their low rates. Different deductions, tax loopholes, and government subsidies can reduce corporate taxes. The effective corporate tax rate, or the rate a corporation actually pays, is usually lower than the statutory rate or the rate a corporation actually pays before any deductions.

  • Estate taxes

As stated by the IRS, the estate tax is “a tax on your right to transfer property upon your death.” The estate tax is problematic, as some view it as a death penalty. Some of the items considered part of an estate include insurance, cash, real estate, securities, and business interests. Individuals’ estates exceeding $5.34 million are the only ones taxed by the federal government. Subsequently, the majority of Americans are free from paying the federal estate tax. At the federal level, the highest estate tax rate is 40 per cent. D.J. Roupas will help you understand precisely what you are expected to pay.

State governments frequently levy estate taxes. States generally utilize lower rates. However, they have lesser restrictions than the federal government’s $5.34 million thresholds. Some states impose an inheritance tax. The amount one has to pay towards inheritance tax is determined by their relationship to the deceased.

  • Sales taxes

These are taxes on purchased products and services. These are usually expressed as a percentage of the total purchase price. Sales taxes differ across states and even from municipality to municipality. There are no sales taxes in several states. This is either at the state or local level. Other states and municipal governments may levy substantial fees. Per the Tax Foundation, when state and local taxes are combined in Tennessee, shoppers can pay as much as 9.44 per cent in sales taxes. Twelve states have sales taxes that are higher than 8%. Sales taxes are frequently thought to be regressive, meaning that lower-income individuals and households pay a significantly higher percentage of their earnings towards the tax in comparison to higher-income residents.

Tennessee has the highest average state and local sales tax rate, at 9.55 per cent, as of 2021. Alaska, Delaware, Montana, New Hampshire, and Oregon are the only states without a state sales tax. Municipalities in Alaska are permitted to levy a local sales tax.

  • Gift taxes

 Gift tax is comparable to estate tax. This is because gift tax is a tax on transferring wealth.    One significant difference is that gift taxes include two living people, unlike estate tax. In addition, the federal government has a far smaller gift tax exemption amount than it does for the estate tax. All donations over $14,000 are taxed, and the recipient is responsible for paying the tax. The highest rate of gift tax is 40% of the taxable gift amount. This tax is imposed not just on cash but also on presents such as company stock or automobiles. Following Connecticut, Minnesota became the second state to enact its own gift tax in 2013.

  • Excise taxes

Excise taxes are comparable to general sales taxes, but they only apply to specified items. Certain purchases, such as gas, cigarettes, beer, and liquor, are often taxed by states. Excise taxes on so-called “sin products” are commonly imposed. These are widely designed not simply to raise funds but also to discourage unhealthy behaviours. The federal government also collects such taxes, which include 18.4 cents per gallon for gasoline and 24.4 cents for each gallon for diesel fuel and a 10% fee for tanning services. On a single purchase, excise taxes and sales taxes are frequently mixed. In many circumstances, a sales tax is paid on top of an excise tax. 

  • Tariffs

A tariff is a levy imposed on products and services imported from another country by one country. The goal is to increase the cost of goods and services imported from other nations to stimulate domestic consumption. Fixed fee tariffs, which are assessed as a fixed cost based on the type of item, and ad valorem tariffs, which are assessed as a percentage of the item’s worth, are the two basic types of tariffs. Tariffs are difficult politically, with questions about whether they work as intended.  If you are involved in an importing business, consider getting hold of Dean Roupas and associates so they can handle your taxes for you.