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What Young People Need to Know About Taxes

What Young People Need to Know About Taxes

Help The Next Generation Make Informed Decisions About Taxes

You may sometimes wonder how to present the concept of tax, and how important it is to educate the younger generation early on. It’s important for them to understand how it will affect their day-to-day lives, and why they may at times feel as if they’re paying so much in all the various types of taxes out there. 

The exposure students get to different types of taxes primarily comes from historical concepts in school, such as remembering the Boston Tea Party and taxation without representation as they study for a History test. Many high schools are unable to offer their students a financial management course, meaning they may not get that exposure until they get to a university or college and explore accounting courses. This means students are not adequately exposed to or taught how to deal with taxes. 

Unless they are set on becoming a tax consultant or accountant, they likely won’t start to realize all the different types of taxes that are out there, until it comes the time that they, as an individual, need to file those taxes. 

Being unprepared in so many ways when it comes to personal financial management can be a bit off-putting when all these different tasks need to be handled. Tasks such as tax preparation, tax optimization, budgeting, and even simply understanding what is and isn’t taxed. 

Knowing the Various Types of Taxes That Are Out There

  • Sales Tax

The first tax that many of our youth are introduced to is a sales tax. Sales tax is something that is added on top of the price of goods (and sometimes services) and is clearly stated on receipts or when buying something online. Outside of the US it’s commonly referred to as Value Added Tax, or VAT. This is calculated into the price, so the price you see is what you pay. 

Sales Tax is managed on a state level so when traveling between states, the rates can be different. Some states don’t have any sales tax at all. Meaning the price you see is the price you pay! 

Sales tax is a simple way for states to be able to generate revenue and provide the local services that are needed to help run and operate the State and local cities. These help fund schools, state roads, and even departments like the Fire Department or Police Department. 

  • Income Tax

The second most common tax to help young people understand is income tax, helping them be prepared that for all the money they earn at a job, a certain portion of it is taken away each paycheck to pay for taxes. There are both state and federal taxes. These taxes are also what is known as progressive, meaning the more a person makes, the higher their tax rate may become. Youth should not let this dissuade them from a high-paying career, but understand there is a certain rate limit for it. The easy part is that most jobs and careers automatically take away the estimated taxes owed from their income. 

Young people should know these taxes are used to fund a lot of various departments within the government and are the government’s main source of income that allows it to provide a nationwide system of governmental services.

While we’re on the topic of income taxes, students should understand there are two taxes which are considered social taxes. This is Social Security tax and Medicare / Medicaid taxes. Social Security is a benefit that one will receive from the government if they are ever unable to work, or when they retire. It helps students to know this means that part of the money they make gets put away by the government to ensure they have something to live on when they decide to retire. 

Medicare and Medicaid are taxes that provide medical benefits during retirement or when a person hits a certain age. It’s a social welfare system put into place to help protect and empower our elderly, without them having to worry about where their money for items like necessary prescriptions will come from. 

  • Other Types of Taxes to Consider

It would be great if there were only just the two types of taxes mentioned above, but unfortunately, there’s a strong possibility of encountering other various types of taxes as one grows older. 

    • Property Tax

For example, teens should be aware that when they eventually buy that first home of theirs, there’s an annual tax to pay called property tax. This means that even after owning the house completely and paying everything off, there’s still an amount that needs to be paid in local taxes. 

These taxes are how the cities and towns collect the most of their tax income, and they can vary widely by city, state, and property types and sizes, from a few hundred dollars a year to several thousand dollars. 

    • Corporate Income Tax

Those big companies out there that make your favorite phone or video game? They also have to pay taxes on all the money that they make. This is what is known as Corporate Income tax, and it’s very similar to individual income tax. They also have to pay additional taxes to those social taxes we mentioned earlier, to help support the communal pool of funds for everyone nearing retirement. 

    • More Taxes Still…

Even with the taxes, we mentioned above, there are still more types of taxes to consider. In total there are around a dozen or so different tax types and the ones not mentioned really only occur when you have more assets accumulated. 

Conclusion

Don’t let young people get disheartened about how taxes seem to take away a lot of things from them. They must remember taxes help provide people with everyday services, emergency services, and services for people when they are down on their luck. Taxes are meant to fund initiatives that help empower everything from local communities to the largest cities. 

The system itself also has a lot of ways to save on paying too much in taxes, through refunds and discounts, and there are numerous ways to help reduce one’s overall tax amount owed, especially when it comes to income taxes. 

Without taxes, the government would not be able to provide all the services mentioned above, and sometimes we forget that. Even service centers such as the DMV, which helps get people driving on the open road, are one of the many government services that are supported in part by taxes. 

It’s important to teach our future generation about the different types of taxes, and why there’s a need to pay this tax. This will help them appreciate early on in their lives and careers the need to act responsibly and work on building their assets while paying their fair share in taxes without any qualms. 

The sooner we are able to educate this critical personal finance area, the better off our future generations will be able to handle their finances and grow their individual wealth. 

Go to the Shamrck Dashboard today for a personalized career plan and access to local opportunities that will help set your student on the path for success. 

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