Income tax refers to taxes collected from various properties, business profits, capital gains, and salaried men’s and women’s paycheques.
The money is returned to the government, where it is used as public funds to pay for government obligations, public services, and essential goods for citizens.
Types of income tax:
- Individual income tax: This is charged through salaries, investments, and other forms of income and household earnings.
- Business Income Tax/ Corporate Income Tax: these are revenues collected from partnerships, contractors, and small businesses and corporations. A small amount of capital expenses is deducted from the total business income.
- State and Local Income Tax: these vary according to the government-appointed tax for the state, for example, New Hampshire has no income tax, but the residents have to pay 5% of any dividend.
How to save income tax?
- Investment: the most efficient way for investing is to buy municipal bonds. These bonds are often exempted from federal taxes, which means a tax-free interest payment from those bonds. Other ways to support are through mutual funds, insurance policies, and schemes.
- Run your own business: You can start your own business from scratch, and many expenses and tax would be covered through your business taxes.
- Claim your tax benefits: Most people don’t know this, but you can claim tax credits through your children’s funds, educational funds, and even through saver’s credits for retirement.
- Health insurance: Health insurance is provided to all citizens and can be easily bought. A small amount of tax would be cut out from your total income but the insurance would cover all you and your dependent family member’s medical expenses. Senior citizens are given a reduction of over $25.000 for medical expenses if they don’t have health insurance.
- Availing deductions: If you haven’t used your insurance and other tax benefits then you can take your receipts and checks to the tax office and they would refund your money.
- Workplace benefits: As an employee you can build your own retirement plan and save some money in your retirement account and the government would pay you back with interest according to your job type and position
- Hold long-term assets: The federal government looks favorably upon you when you hold an asset for more than a year and even gives you special tax concessions on it.
Images Money/Flickr | Taxes are inevitable no matter how hard you try
It’s vital to know that, while you can save on taxes to some extent you should always make sure you’re aware of how much tax you owe the government before making any investment. It’s always recommended to have financial advisors on your side who can let you know your tax obligations before they get overdue.
You should also be aware of tax changes, or tax renewals that you need to pay for tangible assets. These taxes can vary depending on the current government’s laws and the kind of asset you hold.
