Types of Taxes

NC Standards EPF.IE.2.2

  • Identify the types and purposes of local, state, and federal taxes and the way each is levied and used.

EPF.IE.2.3

  • Implement appropriate computations and procedures to prepare a federal or state tax form

EPF.FP.1.3

  • Summarize the role of philanthropy, volunteer services, businesses, and nonprofits in community development and quality of life

What Are Taxes?

  • Taxes are mandatory contributions levied on individuals or corporations by a government entity.
  • Tax revenue is money collected by a government body from its constituents for public spending.
  • Taxes may be based on income, property value, or sales of goods and services.

4 Major Tax Types:

  • Tax on purchases
  • Tax on property
  • Tax on wealth
  • Tax on earnings

1. Tax on Purchases

  • Sales tax: Taxes levied on certain goods and services; varies by jurisdiction (consumption tax).
    • Charged as a percentage of the retail cost at the point of purchase.
    • Local and municipal governments may charge their own sales tax, which is added to the state sales tax.
    • Some states exempt food and drugs from sales tax.
  • Excise tax (Sin Tax): Tax on specified goods like gasoline, alcohol, phone services, hotels, tires, air travel, and tobacco products.

2. Tax on Property

  • Real estate property tax:
    • Major revenue for local governments.
    • Annual or semiannual charge based on the value of land and buildings.
    • Funds schools, police/fire departments, road construction/repair, libraries, water/sewer departments, and other local services.
    • Calculation: determined by multiplying the property tax rate by the current market value of the property.
    • Some areas impose a personal property tax on automobiles, boats, furniture, farm equipment, and livestock.

3. Tax on Wealth (Estate Tax)

  • Tax imposed on the value of a person’s property at the time of death.
  • Federal tax based on the fair market value of investments, property, and bank accounts.
  • Money & property passed to heirs may be subject to an inheritance tax
  • The current Federal Estate Tax Exemption for 2024 is 13.61 million per individual. The tax rate on funds in excess of the exemption amount is 40%.