Taxes

What are taxes?

• Not much to say in this section. Benjamin Franklin said it best...."In this world nothing can be said to be certain, except death and taxes."

• Taxes are involuntary fees enforced by the government in order to finance government activities or services (social security, Medicare, health insurance) after exemptions, deductions, and credits are taken into consideration.

• With that said, probably the most important thing to keep in mind is timing of taxes.

  • You get a pay check of lets say $2000.

  • You get taxes taken out.

  • You get to "take home" $1600

  • With your "take home" money, you can invest into some retirement accounts like 401k/403b or Roth IRA.

  • Depending on the type of account you put your money it, when you withdraw the money at lets say 65 years old for retirement, you will not be taxed again.

  • Some contributions are taken from your paycheck before taxes (i.e. your $2000 check)

  • Sometimes you may get a huge tax when you withdraw that money from the account when you're 65.

  • Main point, its better to get taxed up front and not taxed later, rather than not get taxed now, and have a huge tax later. Why? Time value of money...see basics