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What Are Taxes?

What Are Taxes?

If you’ve ever thought to yourself, “The hardest thing in the world to understand is income taxes,” you may be a genius!

You see, that little quote was said by the guy who brought us the theory of relativity, the one and only Albert Einstein. Yup, one of the smartest minds the human race has ever produced thought income taxes were challenging to understand. So, where does that leave the rest of us mere intellectual mortals?

Because taxes are usually everyone’s biggest expenses, bigger than rent, insurance, food, etc., we need to have some understanding of what they are and how we can minimize them.

I think if Einstein were alive today, he’d approve this message.

Let’s first talk about what a tax is. Pop quiz. Are taxes:

A)  A nice and arbitrary gift you provide,
B)  A compulsory contribution levied by the government.

If you guessed B, you’re obviously correct. Let’s break that down just a bit. Compulsory means you must do it. A tax is not a choice. It’s a requirement. A tax is a must do. Levied by the government means the government is the group that is forcing you to pay the tax.

No one likes taxes, so why have them?

Few would deny that taxes are necessary to pay for things the government provides. Where people argue is how much tax is reasonable and how the government spends the money. But generally speaking, whether you are a Democrat, Republican, or in between, they all agree that we need some tax to pay for our military, police, hospitals, roads, etc. All that stuff isn’t free. It costs money to hire people to build a bridge and to buy the materials. Where does that money come from? Usually taxes.

So, taxes are a necessity and the government makes us pay them. Or as U.S. Supreme Court Justice Oliver Holmes said, “Taxes are what we pay for a civilized society.” Of course, he could have added, “And to pay the salaries for U.S. Supreme Court Justices.” Just for fun, guess how much a U.S. Supreme Court Justice makes a year? About $250,000. Good thing there are only nine of them!

Sick of reading about taxes? I mean, really, what’s the big deal with paying a little tax? You’re about to find out . . .

The proceeding blog post is an excerpt from Get Money Smart: Simple Lessons to Kickstart Your Financial Confidence & Grow Your Wealth, available now on Amazon.

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About the Independent Financial Advisor

Robert Pagliarini, PhD, CFP®, EA has helped clients across the United States manage, grow, and preserve their wealth for the past 25 years. His goal is to provide comprehensive financial, investment, and tax advice in a way that was honest and ethical. In addition, he is a CFP® Board Ambassador, one of only 50 in the country, and a real fiduciary. In his spare time, he writes personal finance books, finance articles for Forbes and develops email and video financial courses to help educate others. With decades of experience as a financial advisor, the media often calls on him for his expertise. Contact Robert today to learn more about his financial planning services.

Reach us at (949) 305-0500