The Vault April 2011: Taxes! (dum dum duuuuummmmmm) In this issue we’ll cover everything you never knew you wanted to know about taxes. Lots of people have strong feels about taxes and whether or not it’s right to levy them at all. Rather than debate the principles of taxation, we’ll check out the basics of the current system in the U.S. like what taxes are, who pays them, who collects them, and what happens when you don’t pay up. Taxes, after all, are dues that we pay for the privileges of membership in an organized society. – Franklin D. Roosevelt Remember: Sharing is caring!We know you love The Vault, so don’t be stingy! Share it with a friend (or two or three).Share it on Facebook using the buttons at the upper right, or just forward it. Video of the month Check our this video of a skateboarder who keeps good records so that he can hand off all the info to his accountant at tax time: http://bit.ly/fsiKYu.
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Famous tax dodgers Nobody really loves paying taxes, but it’s hard to feel sorry for people who make big bucks and won’t cough up! Nicolas Cage has had serious tax trouble for years. Despite making more than$10 million per movie, he didn’t pay his taxes and ended up owing the IRS $14 million. He sued his manager, fought the IRS in court, and had to sell a couple of his houses, but now he says he’ll pay. See the story here: http://bit.ly/3N1cOR Wesley Snipes wasn’t so lucky. He was involved with a group of people who don’t believe that the government should charge taxes and didn’t bother to file tax returns. The IRS wasn’t very happy about that. He ended up owning $17 million and just started a three year stay in the slammer. Here’s the link: http://bit.ly/fubmJj
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What are taxes? A tax is money you have to pay to the government (local, state, or federal). Both individuals and businesses pay taxes. Anything of value can be taxed: what you earn (income taxes), what you buy (sales taxes), or what you own (property taxes).There are even taxes on things like how much air pollution a company creates. Who collects taxes? Many levels of government collect taxes—city, county, state, or federal. Federal income taxes are collected by the Internal Revenue Service (IRS). To pay federal income taxes, you calculate how much you owe and send it in with a form called a ‘tax return’, which is due every year around April 15th . Individual states also charge income taxes, sales taxes, or both. Sales taxes are paid right when you buy something.
Where does all that tax money go? Tax money pays for government-provided services like education, roads, hospitals, the military, and Social Security, and to cover the costs of running the government. Check out this cool interactive tool to learn more about where your federal tax dollars are spent: http://www.whitehouse.gov/omb/budget. Click on the “Explore the Budget” button.
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Who pays taxes? If you work for someone else, they keep money from your paycheck to pay part of your taxes and your employer pays the rest. At tax time, if your tax situation is simple, you can file a form called 1040EZ (as in “easy”). If you’re self-employed, you have to estimate how much tax you owe and pay it every quarter (every three months). Most self-employed people file a 1040 “Schedule C”. If you don’t pay enough during the year, you’ll have to pay more at tax time.
If you pay too much, you’ll get a refund (whoo-hoo!). Generally speaking, if you are a dependent of your parents, you don’t have to pay taxes on the first $5,700 of your income. For the full rules, visit: http://www.irs.gov/publications/p929/index.html. What is an audit? To keep people honest, the IRS follows up on millions of tax returns every year. They make sure you did the math right and that you reported all your income. That’s called an “audit.” People who make more money or are self-employed are more likely to be audited. It’s important to accurately report your income and keep good records of your deductions in case you are audited. What happens if you don’t pay income tax? If you don’t pay taxes, you’ll definitely get audited, and you’ll have to pay back taxes plus fines. If you refuse to pay, you can even go to jail like Wesley Snipes. So pay your taxes!
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