BE FINANCIAL ED.
Taxes
Why need to learn tax knowledge?
Learning about taxes is important for several reasons, both for personal and professional development. Here's why tax knowledge is valuable:
1) Financial Responsibility: Understanding taxes helps you manage your finances better. You become more aware of how much money you actually take home after taxes and how different types of income are taxed. This knowledge is crucial for budgeting and long-term financial planning.
2) Compliance: Knowing tax laws and regulations ensures that you comply with your legal obligations. This can help you avoid penalties, fines, or legal issues related to tax evasion or fraud.
3) Tax Optimization: With a good grasp of tax laws, you can make informed decisions that minimize your tax liability legally. This includes taking advantage of tax deductions, credits, and other incentives that you might not have been aware of.
4) Investment Decisions: Understanding taxes is crucial for making informed investment decisions. Different investment vehicles are taxed differently, and your tax knowledge can influence your choice of investments to optimize after-tax returns.
5) Entrepreneurship: If you own or plan to start a business, tax knowledge is indispensable. It helps in structuring your business in a tax-efficient manner, understanding business tax obligations, and making strategic decisions that impact your business's tax liabilities.
6) Informed Citizenship: Taxes fund public services and infrastructure. Understanding where tax dollars go can make you a more informed citizen, capable of engaging in meaningful discussions about public policy and government spending.
7) Career Advancement: In certain careers, such as finance, accounting, law, or business management, tax knowledge is directly relevant and can be a significant asset for career progression.
8) Self-Employment: For freelancers and self-employed individuals, understanding taxes is crucial for filing self-employment taxes, understanding deductions specific to their work, and planning for quarterly tax payments.
In summary, tax knowledge empowers you to navigate the financial aspects of your personal and professional life more effectively, ensuring compliance while optimizing your financial situation.
Tax now
Tax now means that any earnings from these accounts must pay tax for that year. For example, you must report and pay tax on earnings from savings accounts, Certificates of Deposit(CDs), dividends from stocks, mutual funds, and money market funds.
Tax Later
Tax later which means the money you put in is pre-tax. Pre-tax money deposited in an account is money that you have not yet paid income tax on, but you'll be paying tax later when you withdraw it. These accounts are also called tax deferral account. In the U.S., tax deferral accounts commonly take the form of IRAs,401ks, and 403(b)s.
In the U.S., when you begin to take your money out after 59.5 years old, you'll be taxed as ordinary income tax rates, but if you take money out before 59.5 years old, you'll get a 10% penalty in addition to taxes. Also, you can't keep money there forever. You must start withdrawing it when you reach 73 to75 years old or pay a 50% penalty. However, some tax later accounts are tax deferred but not tax deductible.
Tax-Advantaged Access
Tax-advantaged access means you won't pay tax when you access money from your account. Some
Roth IRAs,529 College Savings plans, and Life Insurance are popular investments vehicles that get tax-exempt distributions.