---
title: "Taxes"
url: https://drpiggybank.org/taxes/
description: "What taxes are and why the timing of taxation matters, with a worked paycheck example."
---

# Taxes

GUIDE 05

- **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