Source: Unsplash | Kelly Sikkema
Not paying taxes on income is, in short, illegal. But the taxation complex is incredibly complicated, and it is possible to make unknowing mistakes when reporting your income or paying taxes on it. For those with several different streams of income, this can be an especially onerous process. Luckily, it is possible to figure out how to pay the appropriate amount of tax, with some research and reading about the topic. Do note, however, that there are completely different tax rules depending on the entity that is paying the tax.
Here is an example: if you are a stockbroker, stock trader, or similar, you are required to pay taxes on stocks. This is because the dividends from these stocks are considered income and should be taxed accordingly. For investors, it is also worth noting that paying tax on stocks is required not just every financial quarter, but also every time that your stocks are bought and sold. Failing to do this can have serious legal consequence. All types of stocks and investment funds have varied rules regarding taxation, so it may be best to consult a professional for advice in this regard.
Even personal, individual taxes can be convoluted. There are resources available online that can prepare taxes for individuals for free or low cost. However, reviews have illustrated that these may not be the best sources for tax preparation. If you are quite serious about preparing your taxes yourself and to the best of your ability, it may behoove you to take a tax course. These classes can provide educational training that teaches you how to prepare your own taxes, as well as others. It could even turn into a career, as it is possible to make money working as a tax preparer. Regardless, there are courses available that will teach you the skills and information you need to not only know how to pay your own income tax but also to help others do the same.
Businesses and corporations must also pay taxes on financial gains. Of course, these groups operate differently that taxes on individuals. Benefits and tax breaks will be provided by the government for certain programs or incentives. These are meant to keep business practices fair as well as hiring. There are also government calculators and tools available that help calculate this. Not everything, of course, is deductible, as businesses are still subject to pay income tax as a holistic unit on the profits that they make quarterly and yearly. Most businesses will hire a tax professional. It is quite complex to prepare business taxes without a degree or training in the topic.
Finally, individual citizens are also subject to income tax. Taxation, in general, is notoriously convoluted, but it also changes yearly due to political changes. This means that just when you may have had your taxes figured out, the law can change the rules completely. In general, you should be able to make personal deductions for verified retirement investments and savings, although it depends on the specifics of the account. You can also make deductions for charitable donations, but note that the amount deductible varies based upon the size and nature of the donation. Additionally, there are deductions that can be made for health-related savings and investments. There are more deductions that exist for individuals; however, they are even more nuanced and complex. In those cases, it is better to ask for help from a certified professional.
It almost goes without stating that income tax is important and needs to be paid. Obviously, no one wants to pay it, but it funds important government services and it is illegal to ignore it. If you are representing a business, taxes on income will be paid differently than if you are an individual. If you are an individual with stock investments, those also will need to be taxed based upon your gains. Finally, there are classes and certifications available online for those that wish to gain a stronger background in tax law and tax preparation. If you choose not to do this for yourself, be sure to contact a trusted professional while preparing your tax documents—just to be sure.