When most people think of taxes, they think of income taxes and the IRS. However, there are many taxes in our company that take saws out of your wallet. In this article, I’ll put income taxes aside and describe the scents of a medley of other American taxes.
Here is a list of other types of taxes:
1. Taxes on death (inheritance)
Ben Franklin is credited with this quote from 1789: ââ¦ in this world nothing can be said certain except death and taxes. Unfortunately, when you die, the government can take a large portion of your assets through inheritance tax. The Tax Cuts and Jobs Act (TCJA) doubled the inheritance tax exemption from approximately $ 5.5 million (per person) to $ 11.18 million in 2018. Due to inflation-related adjustments , the 2021 exemption is $ 11.7 million. While this does not affect 99.9% of the residents of Boone County, I know several people who are concerned about this tax.
Moreover, this change is not permanent. When the TCJA expires at the end of 2025, the inheritance tax exemption will revert to the previous amount of approximately $ 5.5 million. However, President Biden has proposed an estate tax of 45% on all assets over $ 3.5 million. Add to that insult the fact that around 1/3 of states (but not the MO) tax estates (some with rates up to 20%) and your heirs could see 65% of family wealth disappear. My understanding of the 16th Amendment (which authorized income tax) does not support an inheritance tax. Transferring an asset to a child from a parent on death is not income, in my opinion. Do you agree? Of all the taxes listed in this article, this is the most expensive.
Every owner and vehicle owner in Missouri knows about annual taxes on real and personal property. Property taxes are annual payments made to the county in which you reside. Surprisingly, if you are seriously behind on your property taxes, your house can be auctioned off at the courthouse to pay the overdue tax bill!
The most common type of consumption tax is sales tax. When you frequent a downtown shoe store, you will be charged an additional 8.48% sales tax. (Here’s the breakdown: 1) State of MO 4.23%, 2) Boone County 1.75%, City of Columbia 2%, Downtown Community Improvement District 0.5%.) So your news shoes on sale at $ 100 will set you back $ 108.48.
User taxes are virtual sales taxes. Use tax is similar to sales tax, but it applies to purchases made in another state (which did not levy sales tax) for the privilege of using that item in your state of residence. Prior to the June 21, 2018 Supreme Court ruling in South Dakota v Wayfair, Inc., out-of-state retailers without a physical presence (link) in a state were not required to collect and to remit the sales (use) tax on sales made to consumers in the state. Now they are. There are minimum thresholds, but these are beyond the scope of this article. Suffice it to say, if you sold your used skis to someone in Colorado, or purchased their skis, you won’t be required to submit a use tax return. However, most online retailers will charge you a sales / use tax on your order.
Excise taxes apply to certain items. Gasoline, cell phone plans, alcoholic beverages, and tobacco products are specific items subject to federal and Missouri excise taxes. The only way to avoid paying this tax is to refrain from purchasing these items.
Technically, only employers pay payroll taxes, but I use that term to refer to how much the federal government takes from every paycheque without your permission. Specifically, I am referring to the 6.2% social security tax and the 1.45% health insurance tax that is deducted from every paycheck. The only way to avoid payroll taxes is to retire or become an independent contractor. Good news. The SS tax stops once you reach taxable income of $ 142,800 in 2021.
Some employees think they are paying unemployment taxes, but they are not. Only employers pay state and federal unemployment taxes. Employers are also required to match Social Security and Medicare taxes paid by their employees. In addition, traditional companies pay taxes on their annual net income. According to my basic Econ course at Mizzou, companies don’t really pay taxes because they pass those taxes on to the consumer through higher prices (to maintain their ROI).
Finally, everyone has heard of the “Fair Tax” or the “Flat Tax”. Steve Forbes proposed a flat rate 15% tax during his 2020 presidential campaign ahead of the Republican convention. It was implied that with such a simple tax, the IRS would not be necessary. The flat-rate tax is a point-of-sale tax. Since retailers already collect and remit sales taxes, this would not be a new burden on them. However, the tax collected would increase considerably. The only way to avoid it would be to choose not to buy something. The flat-rate tax does not apply to investment or interest income. It also tends to be regressive, which means that the poor pay a greater share of their income to this tax.
The flat tax will never be adopted because it makes too much sense. Professional DC politicians love the power they control by manipulating the tax code.
Aric Schreiner, CPA, PFS, Chartered Tax Strategist, helps successful professionals and small business owners strategize to reduce taxes and audit risk.