- Jessie Jimenez
What are taxes?
Money paid by people and businesses to the government. Nearly every country has taxes. In the United States, where Cashtoons is based, taxes are paid to three places.
- The government for the whole country:
This is called the federal government.
- Individual states:
- Local government, like cities or counties.
Taxes are paid in lots of different ways and are hiding almost everywhere. Whenever money moves from one place to another, some of it probably goes to taxes.
Where does that tax money go?
Your tax dollars are all around you. You may not think about it, but they are hiding everywhere. Like parks.
Schools and libraries.
Roads and bridges.
Everything that is public, meaning everyone can use it, is paid for with taxes.
Most federal tax money is used in three ways:
- Social security, which gives a small boost to people over 65 years old.
- Medicine or medical care for older people or people with disabilities.
- The military, which protects the country and its interests.
Raise your hand if you understand why taxes are important.
Raise your hand if you don't mind paying more money than you have to in taxes.
You kids might ask why this is?
Let's say that your neighbor hires you to do yard work for $10, but come the end of the day, your neighbor gives you $7.
You never see those other $3. They went straight to taxes.
So you work longer hours to get more money. It's possible that more money will end up coming out in taxes. You could get only $6 dollars for every $10 you earn.
The lesson? We pay taxes, and notice the benefits of them all around us, but we also want to keep as much of the money we earn as possible. How?
- Sign up to put some of your paycheck in a retirement account from day one of your very first job. Instead of giving a gift to the government in taxes, you are giving a gift to your future self, tax-free.
There are limits to how much the government will let you put in your retirement account. If you can, put as much as possible.
- If your employer will also give to your retirement account, make sure you give as much as they will match. This is free money!
Last tax tip:
- Don't lie on your taxes. It's tempting, but you will pay a lot more in the end.
How does that Index Fund turtle turn $100 into $14,000? That's a lot more than 10%! Tune in next Saturday to find out what Einstein called "the eighth wonder of the world"!