Definitions for Different Types of Taxes

by Gregory Hamel

Taxes are financial charges imposed on individuals or businesses by a governing body. In the U.S., the Federal Government, state governments and local governments can impose taxes. Taxes allow governments to raise money to pay government workers and fund public programs. Governments can employ a variety of different types of taxes to raise funds.

Income Tax

Income taxes are taxes imposed on income earned by individuals or businesses. The U.S. Federal Government requires most income earners to pay income taxes and many state governments also collect income taxes. For normal employees, income taxes are typically withheld automatically from paychecks and sent to the government. As a result, the actual "take home pay" for a worker often measures substantially less than his stated monthly salary or wage earned. Income taxes in the U.S. increase as a percentage of income for higher income earners. A person who makes half a million dollars will have to pay a higher percentage of his income in taxes who a person that makes $50,000.

Sales Tax & Use Tax

Sales taxes are taxes imposed on the sales of goods and services. In the U.S., sales taxes are imposed by state and local governments. Some states do not have sales taxes. Use taxes are taxes on transactions where sales tax may not be deducted. For instance, if you buy something online from a site that does not charge sales tax you may need to pay a use tax on the item.

Estate Tax

The estate tax or death tax is a tax imposed on an estate after the estate holder dies. If a partner in married couple dies, the estate passes to the spouse and does not incur the estate tax until both husband and wife pass away.

Luxury Taxes

Luxury taxes or sin taxes are taxes imposed on unnecessary or potentially harmful goods such as cigarettes and alcohol. Products and services viewed as vices or which cause health problems are often taxed at higher rates than other goods. For instance, the Obama administration's health care bill included a 10-percent tax on tanning salons since tanning increases the chances of developing skin cancer.

Capital Gains Tax

The capital gains tax is a tax imposed on profits or gains realized from the sale of assets such as stocks, commodities and real estate. For instance, if you invest in the stock market and you sell your stocks after they have increased in value, you are subject to capital gains tax.

Property Taxes

Property taxes are taxes charged for owning certain types of property. If you own a home or land, you may have to pay property tax on the value of the home and/or land. Property taxes may also be imposed on owners of vehicles and boats.

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