You can’t escape taxes. Even if you aren’t paying income tax, you still pay taxes somewhere. When you are aware of the taxes you are paying, you can take steps to minimize your tax liability. There are some taxes you can never avoid, but with some careful thought and planning, it is possible to reduce your overall liability.
Here are some of the taxes you are probably paying — but don’t really think about:
When we talk about “people who don’t pay taxes,” we’re really talking about those who don’t pay income tax, or who get a tax refund that effectively brings the bill to $0. However, even if you aren’t paying income tax, due to your low income, there is a good chance that you are paying payroll taxes. FICA/Medicare taxes are taken out of your paycheck, and you don’t get a refund for them.
Indeed, your payroll taxes are taken out of every dollar you earn up to a certain point (that adjusts with inflation). So, in order to reduce your effective tax rate as it relates to payroll taxes, you need to be making more than a certain amount of money.
State Income Tax
We often think of income tax as a federal thing. But most states actually levy income tax. Unless you live in a state that doesn’t charge income tax, you are probably on the hook for state income taxes. Even if you don’t owe federal taxes, there is a good chance that you owe money to your state.
There are some states that don’t charge sales tax. However, many states do charge you a tax when you buy items. Whether you are buying a car or buying a candy bar, you might be charged a sales tax. You can’t even avoid it by going online to make your purchases; recently efforts have been made to required online sellers to collect sales tax when you make purchases.
You might also have to pay sales tax in your local town. Some counties and cities have their own sales taxes — even if the state doesn’t collect a sales tax.
Did you know that you pay an extra tax when you purchase gas at the pump? There are two components to the gasoline tax. The federal government takes its share, and many state governments also tack on their own gas taxes. Whenever you fill up at the pump, realize that a portion of the cost you pay comes from gas taxes.
There are also a number of “sin” taxes that can affect you. If you drink or smoke, many states charge extra taxes when you buy alcohol or cigarettes. In some cases, the tax on cigarettes can be as much as the price you pay for your carton! The ACA also charges taxes for tanning services, so you have that excise tax if you actively tan.
The idea behind these taxes is that you are engaging in unhealthy behaviors that might result in costs for everyone down the road.
There are plenty of taxes that you might be paying. In some cases, as in gasoline taxes and sin taxes, you might be able to get around paying if you just don’t buy those products. Other times, though, there is no avoiding the taxman.