Taxes come in multiple forms, and depending on your financial situation and professional obligations, you may be responsible to minimize different taxes throughout the year.
We all know that taxes are due on April 15th, but that’s not the only tax Americans are on the hook for. Depending on your occupation, you may be responsible for paying taxes throughout the year, rather than once a year.
In fact, there are seven types of taxes, each with its own characteristics, due dates, and distinct strategies to minimize them.
5 Different Types of Taxes You Should Know
Since the idea of paying taxes might make you want to duck under a rock and not come out for six months, we’ve broken down these taxes for you and their associated due dates. Pay attention, because you don’t want to have to pay a fortune this April.
1. Income Taxes
The first type of tax that you might be required to pay is income tax. Income taxes are due at the end of every year on your tax return. The amount of income tax you pay is based on the amount of yearly income you have received. here are the gross income limits for the 2021 tax year:
- Single: $12,550 ($14,250 if age 65 or older)
- Head of Household: $18,800 ($20,500 if age 65 or older)
- Qualifying Widow(er): $21,500 ($26,450 if age 65 or older)
- Married Filing Separately: $5
- Married Filing Jointly: $25,100 ($26,450 if one spouse is age 65 or older; $27,800 if both spouses are age 65 or older)
Contributing to a retirement plan, checking for flexible spending accounts at work, or claiming work deductions are a few ways to reduce your income tax.
2. Excise Taxes
The second type of tax that you may be responsible for paying throughout the year is an excise tax. Excise taxes are the fees that you pay for various items, such as alcohol, tobacco, or motor vehicles.
These taxes usually only apply to certain products, businesses, or activities. For example, the sale of tobacco is subject to an excise tax, while the sale of cereal is not.
Keep in mind that excise taxes cannot be included as an itemized deduction for your federal tax return.
3. Sales Tax
The third type of tax that you’ll need to keep track of throughout the year is a sales tax, which is the tax you’ll pay when you purchase an item from a store or online.
Sales taxes vary from state to state, so you’ll need to be aware of the amount of sales tax your state charges, as well as the amount of sales tax the company you are purchasing from charges.
Due to the fact that some states like Alaska, Delaware, Montana, Oregon, and New Hampshire do not impose a sales tax, you’ll need to be aware of any taxes your employer is deducting from your paychecks.
4. Property Taxes
The fourth type of tax you’ll need to keep an eye on throughout the year is property tax. Property taxes are the taxes you’ll pay on your home or other real estates. You can cut down your property taxes by reducing home improvement projects, exploring neighboring home values, or checking whether you qualify for tax exemptions.
5. Estate Taxes
The fifth type of tax you’ll want to be aware of is estate tax. Estate taxes are applied to a deceased person’s assets and are due after the person’s death.
The estate tax is applied to the transfer of assets over a certain amount, and they are due nine months following the individual’s death. If you are caring for an aging parent, it’s important to know the estate tax implications as they apply to your family.
Making charitable gifts and setting up marital trusts are tried-and-true ways of lowering your estate taxes.
The Bottom Line: Understanding Minimize Different Taxes You Owe
Now that you know about all of the different types of taxes you may be responsible for paying, you can take steps to minimize them. We’re here to make your life easier, and we believe in giving you the tools you need to manage your finances and make smart choices.
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