Making Cents: ‘Tis the Season of…Taxes
Writer / Kate Rhoten
It’s the beginning of April. Spring is here, and so are the last couple of weeks before the dreaded “tax day” of April 15.
There’s a laundry list of taxes beyond the income tax filing. Some we might encounter every day; others, only once or twice.
What are some of the common taxes we might have to pay? Heard of sales tax, food and beverage tax, use taxes, income taxes, intangible taxes, gift tax, estate tax, inheritance taxes and Social Security/Medicare taxes? How many do you know and can you explain?
Here’s a quick glossary of each:
Sales tax: Imposed by local and state governments for a variety of goods and services sold or provided.
Food and beverage tax: An additional tax assessed on food and drink purchased and/or consumed in a restaurant. This includes takeout food orders.
Use taxes: Taxes on the use of goods and services, such as a tax on gasoline for roads, or extra fees assessed at airports to help pay for facilities.
Income tax: Federal, state, city and county taxes collected on earned income.
Intangible taxes: These vary but include capital gains on taxable investments.
Gift tax: Taxes that may be imposed if the gift amount is greater than a specified amount (up to that amount, the gift is not taxable).
Estate taxes: Taxes on the value of an individual’s assets at the time of death.
Inheritance taxes: Taxes based on the value of assets one receives from a decedent.
Social Security/Medicare taxes: Federal taxes on wages, earnings and self-employment income that pays for the Social Security and Medicare programs.
Taxes and planning
Although we can’t control many of the taxes we pay, we can review and change our game plan. It is important to work with a qualified professional, such as a certified public accountant or a financial planner. Not only is it important to plan for today in order to manage your current income and taxes, but also it is imperative to plan for the future, when you are transferring your assets to your loved ones, other individuals or charitable organizations.
Owing vs. refund
In the immediate future, we’ll all be dealing with income taxes. Do you usually owe or receive a refund? For most of us, this can vary each year, but it’s generally best to be within a range (perhaps $500–$1,000) on either side of being even with the taxman.
If you owe more than that, it would be wise to revisit your W-4 form with human resources. Perhaps you’re not putting enough into the coffer each pay period, or maybe you could lower your taxable income by possibly increasing your 401(k) or 403(b) contributions. These items can be changed easily through employer resources. (If you aren’t currently participating in a retirement plan, you might have to wait for the next open enrollment period.)
On the flip side, if you’re getting a lot of the green stuff back from Uncle Sam, couldn’t you use it throughout the year? Why let the government borrow it interest-free? If this is your situation, you can make an adjustment with your withholding. A tax professional can help you determine what to change.
Once tax season is over, take inventory of your situation. Review your tax return, and adjust accordingly. It’s your money, after all. You work hard for it, so keep what money you can.
Kate is a financial expert of what to do and not do with money as well as owner of 4 Walls Money Coach, A Coaching-Focused Company. She has attended and completed Dave Ramsey’s Counselor Training. Follow Kate on Twitter 4WFCoach, reach out to her via email at email@example.com or visit www.4wallsmoneycoach.com. Feel free to share ideas or questions for future articles.