The Beginner's Guide to Taxes in the US

The Beginner’s Guide to Taxes in the US: What You Need to Know

Navigating taxes in the US can be overwhelming, especially for newcomers, freelancers, and small business owners. Understanding your tax responsibilities is crucial to staying compliant with the law and avoiding unnecessary penalties. In this guide, we’ll break down the basics of taxes in the US, your rights and obligations, and why hiring a Certified Public Accountant (CPA) like Zaouk CPAs can be a game-changer.

Understanding Taxes in the US

The US tax system is progressively taxing the individual based on their income levels. This means you must report and pay taxes on the money you earn as you grow. The Internal Revenue Service (IRS) is responsible for collecting taxes and ensuring compliance. Here are the main types of taxes you should know:

1. Federal Income Tax

Most individuals and businesses in the US must pay federal income tax. The tax rate varies based on your income level and filing status (single, married filing jointly, etc.). The US has a progressive tax system, meaning higher incomes are taxed at higher rates.

Your federal income tax is calculated using tax brackets, which determine how much of your income falls under different tax rates. The IRS updates these brackets annually to account for inflation. If you work for an employer, taxes are typically withheld from your paycheck. If you’re self-employed, you may need to make estimated tax payments throughout the year to avoid penalties.

2. State and Local Taxes

Depending on where you live, you may also have to pay state and local income taxes. Some states, like Texas and Florida, do not impose income taxes, while others, such as California and New York, have higher tax rates. In addition to state income tax, some cities and municipalities also impose local taxes on wages and business income.

State tax rates and rules vary widely. Some states use a flat tax system where everyone pays the same percentage, while others use a progressive system similar to the federal structure. Additionally, states may have specific deductions and credits that can reduce your overall tax burden.

3. Self-Employment Tax

Freelancers and business owners who work for themselves are responsible for self-employment tax. Which covers Social Security and Medicare contributions. This tax is typically around 15.3% of your net earnings, with 12.4% going toward Social Security and 2.9% toward Medicare.

Unlike traditional employees, who have these taxes withheld from their paychecks by their employer, self-employed individuals must pay the full amount themselves. However, the IRS allows you to deduct half of your self-employment tax from your taxable income, reducing the amount you owe.

To stay compliant, self-employed individuals should keep meticulous records of income and expenses, track tax-deductible business costs, and make quarterly estimated tax payments to avoid year-end surprises. Or hire a professional to help you stay compliant and allow your business to grow in the right direction.

4. Payroll Taxes

If you run a business with employees, you must withhold payroll taxes from their wages and contribute your share to Social Security and Medicare. Employers are responsible for withholding half of these taxes on behalf of their employees from their paychecks and remitting them to the IRS.

Additionally, businesses must pay Federal Unemployment Tax (FUTA) and sometimes State Unemployment Tax (SUTA), which fund unemployment benefits. Employers must also comply with wage reporting requirements and provide employees with annual W-2 forms for tax filing purposes.

Failure to properly handle payroll taxes can result in serious penalties and legal issues. Many business owners opt to work with a CPA or payroll service to ensure compliance and streamline the process.

5. Sales Tax

Sales tax applies to goods and services purchased in many states. Businesses that sell taxable items must collect and remit sales tax to the appropriate state tax agency. Sales tax rates vary by state and sometimes by locality, making compliance a complex issue for business owners.

Some states require businesses to register for a sales tax permit and file regular sales tax returns. Online sellers, especially those who sell across multiple states, must be aware of nexus laws, which determine when a business must collect sales tax based on its physical presence or economic activity in a state.

For consumers, sales tax is typically added to the purchase price at the point of sale. Certain items, such as groceries and prescription medications, may be exempt from sales tax in some states. Businesses should keep detailed records of sales and tax collected to ensure proper reporting and avoid penalties.

Do You Need to File a Tax Return?

Not everyone is required to file a tax return. Your filing obligations depend on your income, filing status, and other factors. However, most employees, business owners, and freelancers earning above a certain threshold must file. Even if you’re not required to, filing a return can be beneficial if you qualify for refunds or credits.

Common Tax Deductions and Credits

Deductions and credits can reduce your taxable income and the amount you owe. Some common ones include:

  • Standard Deduction – A set amount deducted from your income based on your filing status.
  • Business Expenses – Self-employed individuals can deduct expenses related to their business operations.
  • Education Credits – Available for students and parents paying for higher education.
  • Child Tax Credit – Provides tax relief for families with dependent children.

Why You Should Consider Hiring a CPA

Taxes in the US can be complicated, especially for beginners, immigrants, and business owners. A CPA, like those at Zaouk CPA, can help you:

  • Ensure Compliance – Avoid mistakes that could lead to penalties or audits.
  • Maximize Deductions – Identify tax-saving opportunities you might overlook.
  • Plan for the Future – Get expert guidance on financial planning and business taxes.
  • Save Time and Stress – Let a professional handle your taxes while you focus on your work and business.

Navigating US taxes doesn’t have to be stressful. If you’re a beginner, freelancer, new business owner, or immigrant trying to figure out your financial responsibilities, Zaouk CPA can provide expert guidance to help you stay compliant and save money. Contact us today for a consultation!

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