Where Does Our Tax Money Go?

Trying to stay within the theme of Budget Stretcher, I thought a series of articles on knowing where your money is going may help some of you understand just how much you pay on certain expenses.

What are the Different Types of Taxes Americans Pay?

Income, property, and sales taxes are a few and oh how much they add up to! What about hidden costs of taxes, such as the expenses paid by manufacturers and distributors that are passed on to the customer.

Get an insight into the importance of understanding tax payments when budgeting.

Self-employment tax that covers social security and Medicare.
Learn about the deductions available for tax preparation costs.
How much goes towards Social Security and Medicare taxes?

Common Taxes Paid by Americans

I’ve decided to start this series of articles with information about the amount and type of taxes you pay. I won’t be able to cover all of the types of taxes that are paid by Americans because that would turn this article into a book.

I’m just going to list a few of the most common taxes that most of us have to pay.

The Complexity of Calculating Taxes

How much do you pay in taxes every year? I can bet many of you don’t have any idea. You may think you can just look at your tax forms for last year and have the answer. I guarantee that would be just the beginning.

Just take a look at the below list of various taxes and do the math yourself:

Federal Income Taxes

Uncle Sam is currently taking between 15% and 39% of our Adjusted Gross Income to pay for whatever it is that they spend money on in Washington. The main point I want to make here is that many people feel that because they received a refund, they didn’t pay any taxes.

For some people, this is true. However, the vast majority of people that receive a refund are just getting back the money they already paid in through withholding, minus the taxes they owed. HOW MUCH DID YOU PAY LAST YEAR?

Income Tax Preparation

Yes, I consider the cost of having our taxes prepared by a professional as a tax. If the federal tax code was published in english, maybe more of us could prepare our own taxes.

Social Security – 15.3% of your income goes directly to the federal government for social security and Medicare and is conveniently deducted from your paycheck.

The myth about your employer paying half is just that. If you weren’t required to pay social security, that is another 7.65% that your employer could pay you.

Sales Taxes

Unless you live in a state that doesn’t have a state sales tax, this costs you around 6% to 7% of every penny you spend. Wouldn’t it be nice to buy something for $99.95, hand the clerk a $100 bill and get a nickel back.

Property Taxes and Real Estate Taxes

These taxes can run into the thousands of dollars a year. I know, there are some places you aren’t required to pay these taxes either, however, you can bet they get this money in other ways. Before you renters start smiling, remember that your landlord has to pay these taxes. Want to guess where he gets the money?

Other Taxes Incurred by Consumers

The Other Guys Taxes

What do you mean “The Other Guys Taxes”? He can pay his own. For each item you buy, the manufacturers and distributors have expenses like the cost of production, packaging, shipping, etc.

They also have to pay taxes. Who do you think actually winds up paying these expenses? If you buy it, you do. I have seen estimates that between 20% and 25% of the cost of most items is for taxes that they have to pay. To make a profit, all companies must pass all expenses they have along to the consumer.

Gas Tax

Federal gasoline taxes average 18.4 cents per gallon and as high as 24.4 cents per gallon for diesel fuel. State gasoline taxes are as high as 57.6 cents per gallon of gasoline in 2022. It isn’t hard to see that a good portion of the cost of your gas is going for taxes.

Did you Know that in 2022: According to Wikipedia

Federal Tax For Gasoline was 18.4c
Tax for Diesel fuel was 24.4c

Pennsylvania Had the Highest State Tax in 2022
Gasoline was 57.6
Diesel Fuel was 74.1

Self-Employment Taxes

Self-Employment Taxes – This is simply the way a self-employed person pays their Social Security and Medicare. They are required to pay 15.3% of their gross income to cover these expenses.

These are the people that really know how much taxes they pay. This is because they are required to write a check for them four times a year and, if they underpaid throughout the year, they may have to write another check on April 15th.

Importance of Understanding Tax Payments in Budgeting

When you look at your budget and wonder where all of your money is going, you may want to consider what you are paying in taxes. There are taxpayers in this country that are paying over 50% of their income in one tax or another.

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Most Commonly Asked Questions Where our Taxes go:

Social Security and Medicare taxes together amount to 15.3% of your income, with 7.65% being paid by the employer and the remaining 7.65% being deducted from the employee’s paycheck.

Can I write off the cost of income tax preparation on my tax return?

Yes, you may be able to deduct the cost of income tax preparation on your tax return if you itemize your deductions. However, the deduction is subject to certain limitations and restrictions.

What percentage of the cost of an item is made up of taxes paid by the manufacturer and distributor?

It is estimated that between 20% and 25% of the cost of most items is for taxes paid by the manufacturer and distributor. These expenses are passed along to the consumer and are included in the final price of the product.

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