We, regular Joes/Janes, pay a lot of taxes, unlike the oligarchs or the wealthy politicians!
If you feel like you’re being taxed at every turn, you’re not alone. From the money you earn to the things you buy, and even the gifts you give, taxes are everywhere. Let’s break down some of the most common taxes in the U.S. and how they affect your wallet—even though there's nothing you can do about it.😜
1. FICA Tax (Federal Insurance Contributions Act)
If you’re an employee with W-2 income, you’re paying 6.2% for Social Security and 1.45% for Medicare (7.65% total). Your employer matches these contributions. However, many wealthy business owners (including partial ownership with stocks) pay themselves minimal W-2 wages (some as low as $1) to avoid hefty FICA taxes on their income.
2. Self-Employment Tax
If you’re self-employed—like a freelancer or small business owner—you pay 15.3% in Self-Employment Tax, covering both the employer and employee portions of the FICA taxes. Many small business owners choose to file taxes as an S-Corporation to reduce these taxes (though this has its own pros and cons).
3. Income Tax
Income tax hits most types of earnings: wages, rental income, gambling winnings, and even lottery jackpots (still waiting on mine!). You pay federal income tax and, depending on where you live, state income tax. States like Florida don’t charge income tax, but others, like California, have steep rates for higher earners. Retirees often seek states that don’t tax Social Security benefits or retirement income.
4. Capital Gains Tax
Sell something for more than you paid for it—like stocks or a house? That profit is a capital gain, and yes, it’s taxable. Short-term gains (on assets held for less than a year) are taxed at higher rates than long-term gains (assets held for over a year), which benefit from lower rates. Unsurprisingly, the wealthy aim for long-term gains to minimize taxes.
5. Sales Tax
Sales tax is added to the cost of most goods and services, and rates vary based on your state, county, and city. Some states exempt (or have a lower sales tax rate for) necessities like groceries, while others tax almost everything. Even private car sales aren’t exempt—you’ll pay sales tax when registering the car at the DMV.
6. Property Tax
If you own property like a home, car, or boat, you’re on the hook for annual property taxes. When you sell property, any profit may also be subject to capital gains tax, though exemptions are available if certain conditions are met.
7. Gift Tax
Generosity has its limits with the IRS. If you give someone a gift exceeding $18,000 (2024 limit), such as for your kid to go to college) you may owe gift tax. The giver, not the recipient, is responsible for paying it.
8. Estate and Inheritance Tax
When you pass away, your estate may be subject to federal estate tax if its value exceeds $14 million (2025 threshold). Additionally, some states impose inheritance tax on beneficiaries, though spouses and children are often exempt. Fortunately, this tax is usually a problem only for the wealthy.
The Never-Ending Tax Cycle: A Camaro Story
Let’s say you really want a Chevrolet Camero:
- FICA Tax: As a teenager, you work at McDonald’s to save money for the car and see FICA tax deducted from each paycheck.
- Income Tax: At the end of the year, you pay federal and state income taxes on those wages.
- Self-Employment Tax: You quit McDonald’s to start a lawn care business. Now you’re paying self-employment tax on your earnings.
- Sales Tax: You save enough to buy a Chevrolet Camaro. The dealership hits you with sales tax.
- Property Tax: Once you own the car, you start paying property tax every year.
- Capital Gains Tax: Years later, you sell the Camaro for a profit. Cue capital gains tax.
- Sales Tax Again: You buy back the Camaro and pay sales tax once more.
- Gift Tax: You gift the car to your teenage son, who just started driving, and its value exceeds $18,000. You pay gift tax.
- Gift Tax Again: Your son gets older and gives the car back to you, triggering another round of gift tax.
- Inheritance Tax: Eventually, you leave the car to your grandson. While it won’t hit federal estate tax limits, he may owe state inheritance tax.
Look how many times you got taxed. Unfortunately, many taxes are just normal processes, and you don't even think about them. Welcome to reality!
Taxation without representation because of the stupid Electoral College and stupid gerrymandering make it suck even more.
P.S. Remember, the easiest way to keep up with my journey is by visiting blog.lannyland.com
