If, a week later, you take $100 from your remaining earnings to purchase a new smartwatch in a jurisdiction with a 5% sales tax, you’ll pay an additional $5 in taxes when you purchase that item.Īltogether, $105 of your initial $1,000 in income has been collected in taxes, just not at the same time. One of the main differences among the tax types outlined below is the point of collection-in other words, when you pay the tax.įor example, if you earn $1,000 in a state with a flat income tax rate of 10%, $100 in income taxes should be withheld from your paycheck when you earn that income. It’s important to remember that every dollar you pay in taxes starts as a dollar earned as income. Most taxes can be divided into three buckets: taxes on what you earn, taxes on what you buy, and taxes on what you own. Develop a basic understanding of how these taxes fit together, how they impact government revenues and the economy, and where you may encounter them in your daily life. ![]()
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