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Tax Questions and Definitions

Question: What is tax?

Answer: Tax is a non-voluntary monetary charge that is levied by one or more enacting levels of government, such as federal, state, county, and city agencies. Taxes are imposed on individual incomes, corporations and corporate profits, large and small businesses, real and personal property, and other entities.

Question: What is the purpose of taxation?

Answer: The purpose of taxation, and the tax system, is to pay for governmental operating expenses, social programs, the building and maintenance of bridges, highways, airports, and the upkeep of the nation's infrastructure.

Taxes are also used to finance military operations, schools, hospitals, police departments, courts, and other social and political expenditures.

Question: What do we pay taxes on?

Answer: Today, taxes are paid on just about anything that can be bought, sold, traded, earned, inherited, or used. Taxes are levied on income, real estate, inheritances, business ventures, personal investments, retirement income and social security payments, and lottery winnings.

Taxes are charged for highway and road usage, gasoline, oil, and other energy sources, clothes, food, alcoholic beverages, tobacco products, telephone, automobiles, and the list goes on and on.

Question: Who determines how much tax is to be paid?

Answer: Congress passes laws and enacts tax codes on the federal level. States, counties, cities and other municipalities institute their own rules and regulations regarding taxation.

Question: How are taxes collected?

Answer: The Internal Revenue Service (IRS) and state and local municipalities collect taxes by different means.

  1. Federal payroll taxes are deducted from employee's paychecks through withholdings by their employer's. This system is called direct withholdings and is collected by employers on behalf of the IRS.
  2. Businesses and corporations also collect taxes on sales and services and submit the tax revenue to the state.
  3. Taxes are also collected on the sale or transfer of real estate, car and trucks, boats, private planes, and other taxable properties and forwarded to city, county, and other local municipalities.

Question: Will there always be taxes?

Answer: Probably so. As long as there is a need for social programs, money for infrastructure building and maintenance, a need for the military, policemen , firemen, and other agencies, a way to get the revenue to pay for them is going to be necessary, so there will be a need for some sort of taxation.

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