Financial accounting master

Financial accounting master Master’s student in financial accounting / passionate about finance & number
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In the U.S., keeping money in cash does not automatically avoid taxes.The IRS taxes income based on:* how the money was ...
20/05/2026

In the U.S., keeping money in cash does not automatically avoid taxes.

The IRS taxes income based on:

* how the money was earned
* whether it was reported
* and whether taxes were paid

—not whether the money is stored in cash, a bank account, or digitally.

Some wealthy people or businesses may use more cash transactions because cash is harder to track, but hiding income from the Internal Revenue Service (IRS) is illegal tax evasion.

Here’s the difference:

Legal tax reduction

Rich people often reduce taxes legally by:

* investing in stocks or real estate
* using business deductions
* borrowing against assets instead of selling them
* using retirement accounts and tax strategies

This is called tax avoidance, and much of it is legal under U.S. tax law.

Illegal tax evasion

This happens when someone:

* hides cash income
* doesn’t report earnings
* keeps “off-the-books” cash
* lies on tax returns

That is a federal crime in the U.S.

Example:

* A restaurant owner receives $200,000 cash but reports only $120,000.
* The hidden $80,000 is untaxed income.
* If discovered, the IRS can impose:
* back taxes
* penalties
* interest
* or even prison time

Banks in the U.S. also report large cash transactions. For example:

* deposits over $10,000 are generally reported to the government
* repeatedly depositing smaller amounts to avoid reporting (“structuring”) is also illegal

Common misconception:
“The rich just keep cash to avoid taxes.”

Reality:
Most wealthy Americans keep wealth in:

* stocks
* businesses
* real estate
* investments

—not piles of physical cash.

In fact, extremely wealthy people often pay lower effective tax rates mainly because investment income is taxed differently than regular wages, not because they hide cash.

“Gifts are always taxable” is a common myth in the USA. In most cases, the person receiving a gift does not pay taxes on...
20/05/2026

“Gifts are always taxable” is a common myth in the USA. In most cases, the person receiving a gift does not pay taxes on it.

Here’s how gift taxes usually work in the U.S.:

* The IRS generally puts the responsibility on the giver, not the receiver.

* If someone gives you money, a car, or other property as a true gift, you usually do not report it as income.

* There is an annual gift tax exclusion.
* A person can give up to a certain amount each year to another person without needing to file a gift tax return. This limit changes over time due to inflation.

* Even if a gift exceeds the annual limit, taxes may still not be owed immediately.
* The giver may simply need to file IRS Form 709.

* Many large gifts count against the giver’s lifetime estate and gift tax exemption instead of creating an immediate tax bill.
* Some payments are not treated as taxable gifts at all:

* Paying someone’s medical bills directly to the provider
* Paying tuition directly to a school
* Gifts between spouses in many situations
* However, income generated from a gift can become taxable.

* Example: If someone gives you stocks and those stocks later earn dividends or rise in value, the future earnings may be taxable.

* Certain states may have inheritance or estate taxes, but federal gift tax rules are separate from those.

So in the U.S., gifts are not automatically taxable, and most everyday gifts never trigger any actual gift tax payment.

“Only employees pay taxes” is a common misunderstanding in the USA. In reality, almost everyone who earns money may owe ...
20/05/2026

“Only employees pay taxes” is a common misunderstanding in the USA. In reality, almost everyone who earns money may owe taxes in some form — not just people with regular jobs.

Here’s how it actually works:

* Employees pay taxes through paycheck deductions. Employers usually withhold federal income tax, Social Security tax, Medicare tax, and sometimes state taxes before workers receive their pay.
* Self-employed people also pay taxes. Freelancers, Uber drivers, content creators, small business owners, and side hustlers must report their income to the IRS. They often pay “self-employment tax,” which covers Social Security and Medicare.
* Businesses pay taxes too. Companies can owe corporate income taxes, payroll taxes, sales taxes, and other fees depending on the business type.
* Investors may pay taxes on:
* Stock profits (capital gains tax)
* Dividends
* Rental income
* Cryptocurrency gains
* Retirees can also owe taxes. Some retirement withdrawals and even part of Social Security benefits may be taxable depending on income levels.
* Consumers pay taxes every day through sales tax on purchases, property taxes through housing costs, gasoline taxes, and more.

Many people think employees are the “main” taxpayers because taxes are automatically taken from their paychecks. But in the U.S., taxes apply to many types of income — wages are just one example.

In the U.S., a tax refund usually means the government took more tax from your paycheck during the year than you actuall...
20/05/2026

In the U.S., a tax refund usually means the government took more tax from your paycheck during the year than you actually owed.

For example:

* Your employer withholds taxes from every paycheck.
* At the end of the year, you file a tax return with the Internal Revenue Service (IRS).
* The IRS compares:
* how much tax you already paid
* versus how much tax you truly owed

If you paid too much, you get a refund.
If you paid too little, you owe more money.

Many people say:

“A tax refund means you gave the government an interest-free loan.”

That’s because the extra money was withheld from your paycheck all year instead of staying in your pocket.

But refunds are not always “bad.” Some Americans intentionally prefer larger refunds because:

* it feels like forced savings
* they avoid surprise tax bills
* tax credits can increase refunds

For example, refundable credits like:

* the Child Tax Credit
* the Earned Income Tax Credit (EITC)

can create a refund even if someone paid little federal income tax.

Example:

* Sarah had $4,500 withheld from her paychecks.
* After filing taxes, she actually owed $3,700.
* The IRS sends her an $800 refund.

That means she overpaid by $800 during the year.

Common misconception:
A refund is not “free government money” in most cases. Usually, it’s your own money being returned — unless tax credits boosted it.

In short:

* Big refund = likely overpaid taxes during the year
* Small refund or balance due = withholding was closer to accurate
* Refundable tax credits can also increase refunds beyond what was paid in taxes

In the U.S., an LLC does not automatically save taxes.An LLC (Limited Liability Company) is mainly a legal structure, no...
20/05/2026

In the U.S., an LLC does not automatically save taxes.

An LLC (Limited Liability Company) is mainly a legal structure, not a magic tax loophole. The IRS can tax an LLC in different ways depending on how the owner sets it up.

Here’s the simple breakdown:

* A single-member LLC is usually taxed like a sole proprietorship.
* A multi-member LLC is usually taxed like a partnership.
* Some LLC owners choose to be taxed as an S Corporation to possibly reduce self-employment taxes.

The key point:
An LLC can sometimes help lower taxes, but only if:

* the business makes enough profit,
* the tax setup is chosen correctly,
* and deductions are managed properly.

For many small businesses, forming an LLC alone changes little or nothing about taxes.

Example:

* Someone earning $20,000 from freelancing may pay nearly the same taxes with or without an LLC.
* But someone earning $150,000 might save money if the LLC elects S-Corp taxation and pays part of the income as salary and part as distributions.

Also, LLC owners still pay:

* federal income taxes,
* state taxes (in many states),
* self-employment taxes,
* payroll taxes if they have employees.

So the myth is:

“Start an LLC and your taxes disappear.”

Reality:

An LLC is mostly for liability protection. Tax savings depend on income level, business type, and tax strategy.

In the USA, Americans lose a large part of their income yearly to paycheck deductions. These deductions include:* Federa...
20/05/2026

In the USA, Americans lose a large part of their income yearly to paycheck deductions. These deductions include:

* Federal income tax
* State tax
* Social Security tax
* Medicare tax
* Health insurance
* Retirement savings like 401(k)

For most workers, about 20% to 35% of their yearly salary is deducted before the money reaches their bank account. 

Here’s a simple example:

Yearly Salary Estimated Yearly Deductions Take-Home Pay
$50,000 $10,000 – $17,500 $32,500 – $40,000
$80,000 $18,000 – $28,000 $52,000 – $62,000

A mandatory deduction called F**A takes 7.65% alone for Social Security and Medicare. 

Many Americans also lose extra money yearly through:

* Health insurance premiums
* Retirement contributions
* Dental and vision insurance
* Local city taxes
* Wage garnishments

The average worker may lose:

* Around $6,000+ yearly to payroll taxes alone 
* Around $1,400 yearly for health insurance premiums 

That is why many Americans say their “gross salary” looks high, but their real take-home pay is much lower after deductions.

Big cities in the USA often feel expensive even when salaries are high because the cost of living rises much faster than...
20/05/2026

Big cities in the USA often feel expensive even when salaries are high because the cost of living rises much faster than income. People may earn more money, but they also spend much more on basic needs.

Here are the main reasons:

* Housing costs are extremely high
Rent and home prices in cities like New York City, Los Angeles, and San Francisco can take 30%–50% of income.
* Taxes are higher
Many big cities have state taxes, city taxes, parking fees, and expensive property taxes.
* Transportation costs add up
Gas, car insurance, tolls, parking, or public transportation can cost thousands yearly.
* Food and groceries cost more
Restaurants, groceries, and delivery services are usually priced higher in major cities.
* Childcare is expensive
Daycare in large U.S. cities can cost over $1,000–$2,500 per month for one child.
* Lifestyle pressure
People in large cities often spend more on entertainment, fashion, eating out, and social activities.

Example:

City Salary Average Living Costs Money Left
$100,000 salary $70,000–$90,000 yearly expenses Much less savings
$50,000 in smaller towns $30,000–$40,000 expenses Sometimes more comfortable

Many workers in big cities feel “paycheck to paycheck” because:

* Rent rises faster than salaries
* Inflation increases daily expenses
* High salaries often come with higher taxes and costs

That’s why someone earning $120,000 in a major U.S. city may feel less financially comfortable than someone earning $60,000 in a smaller town.

Commission jobs in the USA often have unpredictable taxes because the amount workers earn changes constantly. Since inco...
20/05/2026

Commission jobs in the USA often have unpredictable taxes because the amount workers earn changes constantly. Since income is not fixed, the taxes taken out of each paycheck can vary a lot.

What Is a Commission Job?

A commission job pays workers based on:

* sales made
* deals closed
* performance

Examples:

* Real estate agents
* Car salespeople
* Insurance agents

Sometimes workers get:

* salary + commission
or
* commission only

Why Taxes Feel Unpredictable

1. Income Changes Every Month

One month a worker may earn:

* $3,000

Another month:

* $10,000

Because taxes are based on income, larger commission checks usually have more taxes withheld.

2. Bonuses and Commissions Are Often Taxed Differently

The IRS treats commissions as “supplemental wages.”

Employers may:

* combine it with normal paycheck taxes
or
* withhold a flat federal rate

This can make taxes suddenly look much higher on big commission checks.

3. Tax Brackets Can Change During the Year

A huge sales month may temporarily push income into a higher tax bracket.

That does not mean all income is taxed at the higher rate, but withholding can increase during that paycheck.

4. Self-Employed Commission Workers Pay More Taxes Themselves

Some commission workers are independent contractors.

They may have to pay:

* federal income tax
* state tax
* self-employment tax
* quarterly estimated taxes

No employer automatically handles everything for them.

5. Employers Sometimes Withhold Too Much or Too Little

Because commission income changes so much:

* some workers get a big tax refund later
* others unexpectedly owe money at tax time

Simple Example

Month 1

* Base pay: $3,000
* Commission: $500
* Lower tax withholding

Month 2

* Base pay: $3,000
* Commission: $7,000
* Much higher taxes withheld

The second paycheck may look heavily taxed even though yearly taxes balance out later.

Main Idea

Commission jobs have unpredictable taxes because:

* income changes constantly
* commission pay is taxed differently
* withholding formulas vary
* large checks create larger deductions temporarily

That’s why commission workers often see very different paycheck amounts from month to month.

In the USA, some states choose not to charge state income tax because they make money in other ways. Americans in those ...
20/05/2026

In the USA, some states choose not to charge state income tax because they make money in other ways. Americans in those states still pay federal income tax, but they don’t pay extra tax on wages to the state government.

States with No State Income Tax

These states currently have no regular state income tax:

* Alaska
* Florida
* Nevada
* South Dakota
* Tennessee
* Texas
* Washington
* Wyoming
* New Hampshire (taxes some investment income only)

Why They Don’t Charge Income Tax

1. They Earn Money From Other Taxes

Instead of income tax, these states often depend on:

* Sales tax
* Property tax
* Tourism taxes
* Oil and gas revenue

For example:

* Texas earns a lot from property taxes and business activity.
* Florida gets huge tourism money from visitors.
* Alaska earns oil revenue.

2. To Attract People and Businesses

No income tax can make a state look cheaper and more business-friendly.
Many companies and workers move to states like:

* Texas
* Florida
* Nevada

because workers keep more of their paycheck.

3. Lower Government Spending

Some no-income-tax states spend less on public services compared to high-tax states.
That can mean:

* fewer public programs
* different road or school funding systems
* more reliance on local taxes

But “No Income Tax” Doesn’t Mean “No Taxes”

People still pay:

* Federal income tax
* Sales tax
* Property tax
* Gas taxes
* Vehicle registration fees

In some no-income-tax states, property taxes can actually be very high.

Simple Example

If two people both earn $60,000:

* Someone in California may pay state income tax.
* Someone in Texas may keep more salary because Texas has no state income tax.

But the Texas resident could pay higher property taxes or sales taxes instead.

Main Idea

States without income tax usually replace that money with:

* tourism income
* sales taxes
* natural resource money
* property taxes

They also use it as a strategy to attract residents, workers, and businesses.

In the USA, where you live can change how much money you actually keep from your paycheck. Two people earning the same s...
20/05/2026

In the USA, where you live can change how much money you actually keep from your paycheck. Two people earning the same salary may have very different lifestyles depending on their state or city.

Here’s how location affects your paycheck:

1. State Income Taxes

Some states take part of your salary as state income tax, while others take none.

* States like California and New York have higher taxes.
* States like Texas and Florida have no state income tax.

That means a worker earning $70,000 may keep thousands more each year in a no-tax state.

2. Cost of Housing

Rent and home prices vary a lot.

* Cities like San Francisco or New York have extremely expensive housing.
* Smaller cities or southern states are usually cheaper.

High rent can eat up most of a paycheck even if the salary looks big.

3. Cost of Living

Everyday expenses change by location:

* Groceries
* Gas
* Transportation
* Utilities
* Healthcare

A $100,000 salary in one city may feel like $50,000 in another expensive city.

4. Local Wages

Some locations pay higher salaries because living costs are higher.
For example:

* Tech workers in California often earn more.
* Workers in smaller towns may earn less but also spend less.

5. Transportation Costs

Living in cities with public transport can reduce car expenses.
But in many areas, owning a car is necessary, adding:

* Fuel costs
* Insurance
* Repairs
* Parking fees

6. Sales and Property Taxes

Even if income tax is low, some states make up for it with:

* Higher sales taxes
* Higher property taxes
* Expensive insurance rates

Simple Example

* Person A earns $80,000 in New York City.
* Person B earns $65,000 in Texas.

Even with the lower salary, Person B may save more money because housing and taxes are lower.

Main Idea

Your paycheck is not just about salary — it’s about:

* Taxes
* Rent
* Daily expenses
* Transportation
* Local prices

Where you live can completely change how far your money goes in America.

2026 U.S. Federal Tax BracketsSingle FilersTax Rate Taxable Income10% $0 – $12,40012% $12,401 – $50,40022% $50,401 – $10...
20/05/2026

2026 U.S. Federal Tax Brackets

Single Filers

Tax Rate Taxable Income
10% $0 – $12,400
12% $12,401 – $50,400
22% $50,401 – $105,700
24% $105,701 – $201,775
32% $201,776 – $256,225
35% $256,226 – $640,600
37% Over $640,600

Married Filing Jointly

Tax Rate Taxable Income
10% $0 – $24,800
12% $24,801 – $100,800
22% $100,801 – $211,400
24% $211,401 – $403,550
32% $403,551 – $512,450
35% $512,451 – $768,700
37% Over $768,700

Head of Household

Tax Rate Taxable Income
10% $0 – $17,700
12% $17,701 – $67,450
22% $67,451 – $105,700
24% $105,701 – $201,750
32% $201,751 – $256,200
35% $256,201 – $640,600
37% Over $640,600

2026 Standard Deduction

* Single: $16,100
* Married Filing Jointly: $32,200
* Head of Household: $24,150 

The seven federal tax rates remain the same in 2026:
10%, 12%, 22%, 24%, 32%, 35%, and 37%. Only the income thresholds increased because of inflation adjustments. 

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