Sometimes, as I am talking with clients, I realize that there is great confusion over the different kinds of taxes that we pay. Tonight is a brief overview of tax classifications:
Sales Tax--the taxes we pay when we buy something
Income Tax--the taxes we pay on money we earned
Capital Gains Tax--the taxes we pay on passive income, or income we receive but don't actually do anything to earn. Examples of this are bank interest or gains on a mutual fund.
Transfer Tax--some of us will live our whole lives and never pay transfer tax, but it can still be a huge issue for those who owe it. Transfer tax is paid when large amounts of money are transferred from one person to another. Gift tax, paid by the person giving the gift, is one example. Estate tax is another example. A more rare type is generation skipping transfer tax, when a grandparent attempts to avoid gift tax by giving money directly to a grandchild, rather than giving it to the child, who would then give it to his child (causing it to be taxed twice).
April 15 is our deadline to pay income tax, and we'll talk more about that on Monday.
Enjoy the end of the Olympics, and Be Prosperous!
Peggy
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