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[Taxes](https://leofinance.io/@leoglossary/leoglossary-taxes) are a significant factor in determining the amount of [money](https://leofinance.io/@leoglossary/leoglossary-money) that a person has at the end of the year. Taxes affect personal [wealth](https://leofinance.io/@leoglossary/leoglossary-wealth) and [investments](https://leofinance.io/@leoglossary/leoglossary-investment) in different ways.
![image.png](https://i.imgur.com/YLfCBQj.png)
[Source](https://pixabay.com/es/photos/impuestos-evasi%c3%b3n-fiscal-polic%c3%ada-1027103/)
The main goal of taxes is to provide [government](https://leofinance.io/@leoglossary/leoglossary-government) services to society. Taxes also help redistribute wealth among people, which means that everyone [pays](https://leofinance.io/@leoglossary/leoglossary-payment) their fair share. However, this does not mean that taxes are always fair and equitable for everyone.

Taxes can be complicated, but everyone needs to understand how they work so that they can make informed decisions about their [finances](https://leofinance.io/@leoglossary/leoglossary-finance) and [investments](https://leofinance.io/@leoglossary/leoglossary-investment).

## Types of taxes

Taxes are a major factor in determining the personal wealth and investment of an individual. [Income](https://leofinance.io/@leoglossary/leoglossary-income) taxes, property taxes, and [Capital](https://leofinance.io/@leoglossary/leoglossary-capital) gains taxes are all types of taxes that can affect an individual's wealth.

### Income Taxes

Income taxes are imposed on the [income earned](https://leofinance.io/@leoglossary/leoglossary-earned-income) by individuals or corporations. The amount of income tax a person is required to pay is determined by their income bracket, which is determined by their taxable income. 

Income tax rates vary from country to country and government to government but the general idea remains the same; those with higher incomes pay higher rates of income tax than those with lower incomes.

### Property Taxes:

Property taxes are imposed on properties such as houses or land owned by an individual or company.

## Capital gains tax

This is a percentage of your profit from selling an [asset](https://leofinance.io/@leoglossary/leoglossary-asset), such as [stocks](https://leofinance.io/@leoglossary/leoglossary-stocks) or [real estate](https://leofinance.io/@leoglossary/leoglossary-real-estate).

## How taxes affect personal wealth and investments

The tax system is a complicated one. The complexity is even more evident when it comes to taxes on personal wealth and investments. There are five ways in which people address taxes; 

• Individuals can deduct [business](https://leofinance.io/@leoglossary/leoglossary-business) [expenses](https://leofinance.io/@leoglossary/leoglossary-expense) from their taxable [income](https://leofinance.io/@leoglossary/leoglossary-income)

• Individuals can defer capital gains by selling an asset at a loss

• Individuals can receive tax benefits for donating to charity

• Tax credits are available for those who purchase energy-efficient products

• Inheritance tax can be avoided if assets are transferred before death

Taxes affect not only how much money you make, but also how much you save and invest. The more taxes you pay, the less money you will have to invest in your future.

## How the rich reduce their tax burden 

Tax evasion is a criminal offense that people commit when they don’t pay taxes they legally owe. Tax evasion is illegal and can result in heavy penalties, fines, and even jail time.

The rich are often the prime targets for tax evasion because they have the financial resources to avoid paying taxes. Some of the methods used by the rich to reduce their tax burden include:

• Hiding income from investments in [offshore](https://leofinance.io/@leoglossary/leoglossary-account) accounts

• Hiring accountants who specialize in tax loopholes

• Setting up companies to move money around and avoid detection 

The rich are not always taxed, and they often use different methods to avoid paying taxes.

The rich don't have to pay taxes because they find holes in the tax code and use that to their advantage. 

The rich can avoid paying taxes by using a variety of ways, such as by setting up a shell company in a tax haven or by investing in the stock market.

While they are not always successful in avoiding taxes completely, they have the resources to keep themselves out of trouble.  

## How can people address taxes, especially to their benefit?

People are familiar with the concept of taxes, but what about the benefits? How do people address taxes, especially to their benefit?

The answer depends on the type of benefit. For instance, if you are a government [employee](https://leofinance.io/@leoglossary/leoglossary-employee), you will have to pay your taxes. If you're an employer, then you will have to pay your employee's social security and Medicare taxes. 

In general, employers must withhold federal income tax from employees’ wages and pay it to the IRS. Employers also must withhold social security and Medicare taxes from their employee's wages for those two programs. 

However, if a person is an independent contractor or self-employed individual who does not have any employees or any other business partners that they need to share these [payments](https://leofinance.io/@leoglossary/leoglossary-payment) with, then they may have to do a lot of deductions before getting it right. 

Income-driven repayment plans are another option for taxpayers with federal [student loans](https://leofinance.io/@leoglossary/leoglossary-student-loan) who want to lower their monthly [payments](https://leofinance.io/@leoglossary/leoglossary-payment) or get rid of them completely after 20 years of payments. 

People often have to make difficult decisions when it comes to taxes and benefits. There are many ways that people address taxes, especially for their benefit. One way is by using a tax preparer or accountant who specializes in this field 

## How can you reduce your tax burden? 

Taxes are an unavoidable part of life. They are the [price](https://leofinance.io/@leoglossary/leoglossary-price) we pay for the services and benefits that we receive. People might not like to talk about their taxes, but they should know how they can use their benefits to reduce their tax burden.

The first step is understanding what your tax-exempt status is. Most people have some type of exemption or deduction that reduces the amount of taxable income they have to pay in a given year. There are also many other ways in which you can reduce your tax burden, including donating to charity, claiming deductions on investments, and saving for retirement.

There are many ways in which you can reduce your taxes, but these options will only work if you make the effort to claim them in the first place. 

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