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5 Things Guaranteed to Shock You About Taxes

Did you know most Americans in the 1700s didn’t pay taxes? How about that most of the taxes we pay today have only been around for 120 years or so? That and some states don’t even have a sales tax. (Delaware being one of those. Which is why you’ll see many businesses listed on your Delaware corporation search results.) Much less, some people in other countries don’t even have to pay an income tax. What’s up with all of this? Why the extreme differences? We’ll tell you why; plus, divulge more tax facts that’ll make your jaw drop…literally— (Who knew taxes could be this exciting, let alone shock-worthy?) (Let's just say number 4 involves 80 cats, a 1,400-square foot home, and tax deductions.)

1. America’s First Settlers Paid Little to No Taxes

Yes, the first American settlers lived a life with few, if any, taxes. No income tax, sales tax, estate tax, or corporate tax. According to this article, these taxes didn’t even exist. In fact, the estate tax, one of America’s oldest taxes, was first issued in 1797. Its purpose? To finance wars. So, after a war was over, the estate tax would be repealed and disappear. Americans would go back to living a tax-free life. Another war would come about, and boom! up pops the estate tax. It was until 1916 that this tax became the one we know (and pay) today.

Why so few taxes?

You can attribute this to Americans’ hatred of taxes at the time. In fact, hate would be an understatement. You have to remember that the US broke off from Britain because colonials were tired of paying taxes to a country they held few ties to and didn’t choose the representatives for. As politician and lawyer, James Orbit first put it, “taxation without representation.” Remember, also, that these same first Americans threw barrels of tea in the Boston river (Boston Tea Party) and 21 years later set fire to a local tax collector’s house (Whiskey Rebellion). Both incidences were sparked by taxes. In case you were wondering, most Americans (54%) today are fine with the amount of taxes they’re paying.

2. These Five States Don’t Have Sales Tax

In 1921, West Virginia became the first state to have a sales tax. By the end of the 1930s, 23 states had adopted the sales tax. Three decades later, 21 more states had. The District of Columbia and Guam even followed suit. But no matter how many states or territories added the sales tax, Alaska, Delaware, Montana, New Hampshire, and Oregon wouldn’t budge. Residents of these states still don’t have to pay sales tax. Still, Delawareans who sell goods and services pay millions in gross receipts tax. (However corporate laws are relaxed enough to where you’ll see many Fortune 500 companies when conducting a Delaware corporation search.) A tax some refer to as “the secret sales tax.” Montana and Alaska rely on a severance tax to compensate for not having a sales tax. And New Hampshire and Oregon boast higher than average property taxes; although, unlike New Hampshire, Oregon’s property tax is capped. So, it’s not like residents don’t pay taxes.

3. Pay the IRS with Your Credit Card

While it’s not recommended, you can (as a last resort) pay your annual federal taxes with your credit card. Know, though, that you’ll be charged a minimum $2.69 service fee, three cents more than the debit card fee. However, the fees don’t stop there, as credit card processing fees range from 1.87%-2.35% of the total amount paid.

Why the processing fee?

There’s actually a processing fee for every credit card transaction. If you weren't aware of this, it's probably because businesses usually pay it. That’s why many businesses have a dollar minimum for credit cards. Since the IRS isn’t a business but a government agency, you have to pay the fee. Other than the processing and service fee, you’ll have to deal with a skewed credit utilization ratio. If you owe over 30% of your credit limit, it could hurt your FICO score. So if you are considering this, and you owe less than $10,000, you could set up an installment plan with the IRS instead, as this article states. Otherwise, consider using your credit card; it’s better than not paying at all.

4. Missy Could Get You a Tax Deduction

The Tax Court ruled that a family lawyer could claim $12,068 in cat care expenses as a charitable deduction on her 2004 federal tax returns. This was considered fair given that the lawyer rescued and cared for as many as 70-80 feral cats in her 1,400-square foot home at a time.

What’s the big deal?

It’s a victory for animal rescuers and pet lovers, as there are now more tax-deductible options for animals. Especially since a whopping $66.75 billion was spent on pets last year. Other than rescuing and sheltering animals, you could claim Fluffy as a moving expense. However, the move has to be because of your job and you have to have moved at least 50 miles from your previous house. Also, know that you cannot claim your pet as a dependent. Dependents, according to this article, must be human. This is because children, who are normally dependents, grow up to become tax-paying adults; cats and dogs do not.

5. Businesses Can Turn into Hobbies

Yes, the IRS can label your business a hobby. This especially is a possibility if you haven’t generated profit for at least three of the last five years. The con is that you won’t receive the same tax benefits as you would if it was considered a business.Craft businesses and sole proprietorships are at a greater risk of becoming “hobbies.” To prevent this, sole proprietors need to consider converting to an LLC, partnership, or corporation. Since the IRS views these business entities as more “legitimate.”

Bonus: More Oil May Mean No Income Tax

Qatar, the wealthiest country in the world, has no income tax. Not to mention, dividends, royalties, profits, capital gains, and property taxes as well. Though oil companies must pay a hefty 35% in taxes. Other oil-rich countries, such as Saudi Arabia and Oman, also don’t have an income tax.

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