Paying taxes is a routine part of adult life in the United States, as it is in most countries. However, what many taxpayers don’t realize is that the world of taxes is full of oddities and quirks. The team at Ideal Tax has put together some surprising facts about U.S. taxes that you may not have known.
Bagel Cutting Tax
New York imposes a bagel-cutting tax. If you buy a whole bagel in New York, it’s tax-free. However, if you want your bagel sliced or served with cream cheese or any other topping, there’s an additional tax.
The Tax Code Is Monumentally Huge
First off, did you know that the U.S. tax code is over 10.1 million words long? That’s longer than the entire Game of Thrones series combined! It’s no wonder that it’s difficult for the average person to navigate.
Taxes Weren’t Always Mandatory
Although paying federal income tax is a given today, it wasn’t always so. The first U.S. income tax was imposed during the Civil War to cover war expenses. Later, the 16th Amendment, ratified in 1913, made federal income tax a permanent fixture.
Some States Don’t Have Income Tax
Surprisingly, seven states – Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming – do not levy state income tax. Additionally, Tennessee and New Hampshire only tax interest and dividend income, not earned income.
Not All Income Is Taxed Equally
The U.S. tax system is progressive, which means different levels of income are taxed at different rates. However, what many don’t realize is that not all income is subject to the same taxes. For example, long-term capital gains (profits from selling investments held for longer than one year) and qualified dividends are taxed at a lower rate than ordinary income.
There Are Some Truly Strange Tax Deductions
The IRS allows for some highly specific and rather unusual deductions. For instance, if you have a medical condition and your doctor recommends that you install a swimming pool or a home spa as treatment, the costs may be tax-deductible. Another surprising deduction? Clarinet lessons! If an orthodontist prescribes them to correct an overbite, they can be deductible as a medical expense.
Your Pets Can’t Be Claimed as Dependents
While your furry friends may feel like part of the family, the IRS doesn’t agree. Pets, regardless of how much we love them or spend on them, can’t be claimed as dependents. However, if your pet is a service animal or if it’s used in business (like a guard dog at a business property), those related expenses might be deductible.
Billionaires Who Pay Little to No Income Tax
Shockingly, some of the wealthiest people in the United States sometimes pay little to no federal income tax. Thanks to the preferential tax treatment of investment income over wage income, it’s entirely possible for billionaires to limit their federal income tax liability legally. This fact was spotlighted in a recent ProPublica report, causing quite a stir.
A federal tax on long-distance phone calls was introduced in 1898 to help fund the Spanish-American War. Although the war ended the same year, the tax lasted for over 100 years until it was finally abolished in 2006.
There’s a “Cowboy Tax” in Nevada. Since 2014, Nevada has been imposing a 9% Live Entertainment Tax, commonly known as the “Cowboy Tax,” on proceeds from admissions and food, beverage, and merchandise sales at events like the National Finals Rodeo.
Hot Air Balloon Rides
In Kansas, untethered hot air balloon rides are tax-exempt, while tethered ones are not. The logic behind this is that untethered hot air balloons are considered a legitimate form of transportation, while tethered ones are seen as amusement rides.
Playing Card Tax
Alabama has a “Playing Card Tax.” Any resident or business that purchases or sells a deck of playing cards with more than 54 cards in Alabama is required to pay a 10-cent tax.
South Carolina offers an “Unconventional Fuel Tax Credit.” If you power your vehicle using some type of unconventional fuel, such as chicken waste, you may be eligible for a state tax credit.
In Maine, you can get a tax deduction for Oyster cultivation. The Maine Seed Oyster Tax Credit provides a refundable tax credit to taxpayers who purchase seed oysters cultivated in Maine for the purpose of growing edible oysters commercially.
U.S. citizens and residents must pay U.S. tax on worldwide income. The U.S. is one of the few countries that taxes based on citizenship, not just residency. That means that American citizens and residents must pay U.S. taxes on their income, no matter where in the world it’s earned or where they live.
The IRS Adjusted Its Tax Income Brackets — Are You Ready?
Have you heard that the IRS adjusted their tax brackets? The reason behind the IRS adjusting its tax income brackets for next year is tax consolidation, which aims to simplify the tax code. You might have already heard about it.
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