“Nothing is guaranteed in life except death and taxes,” thats what people often say about paying taxes. Taxes are often seen like a certainty in life. An eternal component of our financial, commercial, and personal lives. Something that is present in every purchase and in every bank statement. Though taxes have become a seemingly permanent part of our lives, very few actually understand the basics of taxes or all the different types of taxes we are charged on a regular basis. It is an important part of our financial lives. Understanding what they are and why we pay them is a big step towards financial literacy and freedom.

Understanding Taxes

Taxes in their most simple form are involuntary (meaning required) fees that are charged to individuals or businesses and collected by a government or organization in order to fund larger activities. These taxes are charged to help fund a number of important activities, such as public works, government services, legislative officials, and maintaining internal infrastructures in businesses. Taxes are generally used for the greater good, meaning the money they provide goes back into helping the larger community through services, positions, or activities.

Who Pays Taxes?

Taxes are typically charged on certain types of monies or investments that are received by individuals or businesses that qualify as taxpayers. Not everyone pays taxes. Some people are exempt due to their age, income level, or disability status. However, the income that can qualify as taxable varies widely. It can be your salary or pay from your work, capital gains from investments, dividends on bank accounts or money markets, and even certain gifts or inheritances received from family members. In some states, you will also pay additional taxes on certain purchases you make, such as groceries, clothing, or alcoholic beverages.

Taxes are required, and you can go to jail for not paying all the taxes that you owe. The Internal Revenue Service (IRS) is in charge of collecting taxes and setting the tax rates for the upcoming year, in compliance with local, state, and federal laws. There are many different types of taxes that you as a taxpayer or business owner. Each of them is levied separately and for different reasons at different rates.

Income Tax

Income tax is the most common type of tax people encounter. It describes a tax generated automatically depending on the income you generate within a given year, either as a business owner or an individual. You will file an income tax return annually to help determine how much tax you will owe based on your income earned the previous year. Income tax is calculated on all forms of income, including wages, annual salary, sales commissions, investment earnings, and business profits.

Individual Income Tax

This type of personal income tax is paid only for individuals based on their unique income for the year. This is typically gathered by the state, not at a federal level. Your taxable income can be reduced by exemptions, deductions, and credits depending on your unique financial situation. This means that you will not pay tax on your entire income.

Calculating Income Tax

Your entire income is not taxable. Every taxpayer’s unique citation determines what exemptions, deductions, and credits you might be eligible to help reduce your overall taxable income. There are several common types of deductions based on your personal situation. Every taxpayer has the choice to opt for an itemized deduction (a line by line accounting of all the expenses and credits you’re eligible to receive) or a standard deduction (a flat fee that reduces your income by x amount and does not require individual accounting). For 2020, the standard deduction for a single person was $12,400, while a married couple filing jointly could deduct $24,800. As the head of a household, you’re eligible to deduct $18,650.

Itemized deductions are more specific. These include mortgage interest paid, local income, sales, and property taxes, medical expenses, work-related education expenses, and charitable donations; there are many other categories as well. Itemizing deductions can help you save some extra money depending on your financial situation, especially if your itemized deductions add up to more than the standard deduction.

Credits are applied based on if you’re claiming people as dependents (people in your household you take care of), how much money you’ve saved over the past year, your status as a homeowner, energy-efficient properties, health care coverage, and education or tuition tax credits.

Examples of how Income Tax are calculated

Let’s look at how these might play out for a real-life couple. For example, say that you’re a 40-year-old employee who makes $60,000 a year. You are the head of your household and file jointly with your spouse, who makes $40,000 a year. Both of you receive health insurance through your employers. You have donated $1,000 over the past year and live in your own home, you pay a monthly mortgage fee of $1,600. You have two twin children who are six years old.

 In this case, you and your spouse are starting with a combined annual income of $100,000 a year. Your itemized deductions will not exceed the standard deduction of $24,800, so you choose to take the standard deduction. Your taxable income is now $75,200. Based on this income, you will then be assigned a tax bracket (a range of incomes that you fall between), which comes with its own percentage of tax rate you’ll be asked to pay. In this case, your total tax due is $8,600. However, you’re eligible for a child tax credit for your two children, reducing your taxes due by $4,000 and leaving your total tax bill for approximately $4,600.

Freelance Tax

As a freelancer, the money you earn falls under additional income taxes. The IRS considers freelancers self-employed if they make more than $400 a year. You’ll need to pay not only your standard income taxes but an additional self-employment income tax because the IRS considers you a business owner. This may seem like an excessive charge, but it makes sense when you realize you are now accounting for both the employer and employee contributions to other federal tax programs.

Corporate Tax

Corporate taxes are taxes charged on the profits of a business or corporation. These taxes are paid based on the annual reported taxable income of a business. It’s calculated using the formula of total revenue earned minus cost of goods sold. Administrative expenses, sales and marketing, depreciation, and other general operating expenses are factored into the cost of doing business.

Corporate tax rates vary widely from location to location and can be altered or avoided through deductions, subsidies, and other tax loopholes created by certain states. Thus, the effective corporate tax rate (the rate of taxes actually paid) is usually far lower than the stated legal tax rate.

Sales Tax

Sales taxes are consumption taxes paid with the purchase of every good or service that’s consumed. The typical conventional sales tax is usually charged at the initial purchase of the item. The business collects your taxes and then pays them to the government; they are serving as the intermediary and making sure the government is paid appropriately for every purchase. There are loopholes to avoid paying certain taxes, and some states have very low or even non-existent sales taxes. Overall most states charge them as a way to fund other activities. Sales tax is typically higher on luxury items or restricted items such as alcohol or imported goods.

Property Tax

Property taxes are paid on property owned by individuals or entities directly to the government. It’s calculated based on the land value and any structures located on the land at the time and is charged annually by local governments to the owners of the property at hand. Some places even tax personal property such as cars or boats in addition to land.

Tariffs

Also known as international taxes, tariffs are charged specifically on imported goods that are designed to discourage people from buying internationally and stick to local products. Tariffs are charged on any product shipping in from outside the United States. They are usually much higher than other taxes. They’re also often charged in addition to other local or state taxes, adding to the overall expense of your purchase.

Estate Taxes

Estate taxes are paid at the time of a person’s death based on the total value of their property. Many estates use legal loopholes or careful writing of their inheritances to avoid these taxes. Estate tax rates are often high and can significantly decrease the market value of any inheritance you receive. Estate taxes vary by jurisdiction and can go from very low to very high depending on local laws.

Understanding what taxes are and why we pay them can get complicated. Taxes were ultimately designed with good intentions. It is designed to support our local communities and our federal government. The taxes we pay help fund a larger effort to strengthen the infrastructure of our world. We should not only focus only on why we pay taxes but also see the bigger picture of what these taxes do and what they fund. It’s the only way to truly understand why we pay them.

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Overall, stocks have only trend upwards over the years, although they sometimes move up or down in price depending on the market. When done correctly, investing in stocks will help grow your money. Buying socks may seem complicated but it is not. Before buying a stock always do some research on the company and how their stock has performed over the years. All investing apps recommended below are equipped with the necessary tools you will need for your research.

If you don’t know where to start here is a list of some of the most recommended investment apps you should look into.

1. Robinhood

Robinhood Markets, Inc. is an American financial services company located in California. They provide a free app with no hidden fees or extra charges. If you are on a low budget, then this app should be right for you. This investing app offers one free stock for every new account sign-up, commission-free trades for stocks, and ETF’s, with as little as $1 investments. This app also offers a way to reinvest dividends into fractional shares and the buying and selling of cryptocurrencies as well.

Robinhood Gold is paid option that costs $5 per month. It provides new opportunities with in-depth research and data, bigger instant deposits, and access to invest with margin.

Pros

• No account minimum
• Fractional Shares
• Cryptocurrencies trading
• Fractional dividends reinvestment

Cons

• No retirement accounts
• No mutual funds or bonds
• Limited customer support

2. Stash

Stash makes investing easy for beginners by offering multiple investing tools such as portfolio builder, a diversification analyst tool, retirement calculator, automatic reinvestment of dividends, and more.  There is no cost for downloading and signing up for this app! Depending on your investment type Stash will charge a monthly fee of $1 to $9. One great option for this app is that it allows the purchase of fractional shares for pennies.

Stash offers three different plans to choose from with a monthly fee as follows:

• Beginner – cost $1 per month
• Growth – cost $3 per month
• Plus – cost $9 per month

Pros

• Educational content and support
• Fractional shares
• Dividends reinvestment
• Value-based investment offerings
• Traditional and Roth IRAs
• Online debit accounts
• Custodial accounts

Cons

• No investment management
• High ETF expense ratios
• Account management fee

3. WeBull

Webull offers an impressively smooth interface for both mobile and desktop devices. This app is mostly used by casual investors but it is also a great app for new investors as well. Webull offers $0 commissions and no deposit minimums to start. This app also offers options to trade between stocks, ETFs, and cryptocurrencies. The Webull app provides an in-depth analysis tool. New investors get four free stocks for investing $100 or more within 30 days of signing up.

Pros

• No Fees
• Easy-to-use platform
• Advanced tools
• Access to cryptocurrency

Cons

• No mutual funds for retirement
• Little educational support

4. Acorn

Acorn allows micro-investing through investing spare change. The app rounds up any purchases made from a linked credit or debit card to the next dollar and only invest it when your round up reaches $5. This app offers a diversified portfolio, automatic rebalancing, and a way to save for retirement. There are three different low-cost subscription plans to choose from.

Acorn Low-Cost Plans

• Lite – cost $1 per month
• Personal- cost $3 per month
• Family – cost $5 per month

Pros

• Automatically invests spare change
• Cashback from select retailers
• Offers Educational content

Cons

• Small investment portfolio
• High fee on small account balances

5. E*Trade

E*trade investment app offers $0 commission trades with a $0 minimum to start. The app allows dividends to be reinvested into ETF’s and stocks that are only trading above $5 per share. You can get $50 or more cash credit when opening a new account and fund it with 5000 and more within 60 days using pro code: WINTER21. This offer is only valid until 1/31/2021.

Pros

• Easy-to-use tools.
• Large investment selection
• Excellent customer support
• Access to extensive research
• Advanced mobile app
• Commission-free stock trading
• Commission-free ETF trading
• Fractional dividend reinvestment

Cons

• E*Trade website can be complicated to navigate.
• Does not allow the purchase of fractional shares

6. TD Ameritrade now Charles Schwab

TD Ameritrade has recently merged with another popular investment company called Charles Schwab in October 2020. The app offer a powerful marketing platform for investing and trading a large selection of online stocks and ETF’s.  This investing app offers educational tools such as webcasts and online interactive courses. No commission fees on online trading. TD Ameritrade and Charles Schwab does not offer a way to purchase fractional shares but allows you to reinvest dividends earned into new shares of that company’s stock.

Pros

• Commission-free stock and  ETF trading
• Free research tools
• High-quality trading platforms
• No account minimum
• Offers Educational content
• Very good customer support
• Large investment selection
• Fractional dividend reinvestment

Cons

• Cannot buy fractional shares
• Does not allow credit/debit cards or electronic wallet for money transfer

7. Sofi

Sofi first debuted in 2011 as a student loan company. In February 2019 Sofi launched its investing platform. This investing platform is fairly new and does not have a track record, which is why investors may prefer other brokerage apps over Sofi. Sofi investing app is a good choice for beginners and experienced investors as well. Sofi offers to invest in stocks, ETFs, and cryptocurrencies. Investing with this app requires no minimum balance with no transaction fees for trading. Sofi also provides free financial counseling.

Pros

• Commission-free stock and ETF trades
• Commission-free Cryptocurrency trading
• Fractional shares available
• Fractional dividend reinvestment
• No account minimum to start
• Free financial and career counseling

Cons

• Limited track record
• No retirement investments
• Small selection of tradable securities

Besides Investing Sofi offers other services as well:

• Student Loan Refinancing
• Medical/Dental Resident Refinancing
• Parent PLUS Refinancing
• Private Student Loans
• Undergraduate Student Loans
• Graduate Student Loans
• Law & MBA Loans
• Parent Student Loans
• Personal Loans
• Home Loans
• Mortgage
• Mortgage Refinance

8. Fidelity

Fidelity offers trading for investors through its mobile app, website, and desktop platform. There is no minimum investment or stock trading cost. This investing app offers more than 7000 stocks and ETF’s to choose from. Fidelity also offers fractional shares, bonds, mutual funds, and options.

Pros

• Commission-free stock, ETF, and options trades
• Large selection of research providers
• Excellent customer service
• Expense-ratio-free index funds.
• Highly rated mobile app and desktop platform

Cons

• High broker-assisted trade fee
• High fees on mutual funds

9. Merrill Edge

Merrill Edge is an investing app from Bank Of America. Anyone can use this app to invest in stocks, bonds, ETF’s and Options. Bank of America customers will benefit from using this app more than anyone else. Merrill Edge offers in-person supports to Bank of America customers at most of their locations. They also offer larger cash bonuses for members of their preferred reward program.

 Merrill Edge Promotions

In order to claim Merrill Edges’s promotion, you will have to make a qualifying deposit on a new account within 45 days of signing up and maintain your balance for at least 90 days.

Pros

• Commission-free stock, ETF and options trades
• No account minimum to start
• Bank of America Integration
• Provides third party research tools

Cons

• Best for Bank of America customers
• Fewer securities for advance traders

10. Interactive Broker (IBKR Lite)

Interactive broker is an American brokerage firm with the largest electronic trading platform in the U. S. Interactive broker offers two plans, a pro and lite plan. In this post, we will mostly focus on the Lite plan. Interactive broker Pro is for advanced investors worldwide, while Interactive Broker Lite is for all investors living in the U.S. Interactive Broker Lite (IBKR Lite) is offering their retail clients $0 commissions on US stocks, ETF trades with no account minimums and no inactivity fees. Here is a comparison video of IBKR Pro and IBKR Lite.

IBK Lite Tradable Securities:

• Stocks
• Fractional shares
• Bonds
• Mutual funds
• ETFs
• Options
• Futures
• Forex
• Metals

Pros

• Commission-free stock, ETF and options trades
• No account minimum to start
• Large investment selection
• Advance research tools

Cons

• Website can be difficult to navigate
• Inactivity fees on IBKR Pro plan

There are many other apps that investors prefer over these mentioned above. One such app is Zacks trade. Zacks Trade is an excellent investing app but did not make my top 10 list because of a $2,500 minimum requirement to start.

Investing in stocks and ETFs can earn investors a lot of money but you should also know that there is always a risk in investing. Always remember to do your research before investing your hard-earned money.

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Satoshi Nakamoto

In the beginning, cryptocurrency was relatively unpromising. Satoshi Nakamoto was trying to create a new form of digital cash. Nakamoto, a quiet interloper in the financial world, was hoping to create a digital cash system that did not rely on a central entity. His hope was to avoid creating one specific financial entity, such as a central bank or trading market, that had total control over the financial market he was hoping to invent. Previous electronic online currencies had tried to do the same thing and failed, like B-Money or Bit Gold. The desire to create electronic cash was still pressing, leading to the invention of bitcoin by founder and developer Satoshi Nakamoto. The only catch? No one knows who Satoshi Nakamoto is.

The mysterious man never actually announced himself to the public. A white paper (an informational document designed to promote or highlight features of a product or document concisely) was anonymously posted to a financial mailing list detailing the invention of this new cash system. Titled Bitcoin: A Peer to Peer Electronic Cash System, the paper was authored by someone calling themselves Satoshi Nakamoto in 2008. A year later, someone had transformed the paper into a publicly available software, and by 2009 people were mining (buying) and creating new bitcoins that were later verified in blockchain exchanges.

The beginning of Cryptocurrency

In 2011, Bitcoin continued to increase in popularity, creating a national conversation about cryptocurrency and other decentralized and encrypted currencies. Altcoins, alternative cryptocurrencies began appearing left and right, continuing to improve on the original design. Many different variations of cryptocurrency began emerging and disappearing off the market, with ultimately around a thousand remaining in permanent circulation. The first cryptocurrency crash in 2011 sent shockwaves through the online world, causing many investors to lose hundreds and thousands of dollars. The crash also caused increased volatility in the remaining investors’ shares.

Over the next five years, cryptocurrency built its way back up. Cryptocurrency surged forward with the emergence of another top cryptocurrency model called Ethereum. Ethereum’s Ether coin facilitates blockchain interactions and triggers an initial coin offering (ICO) platform. This platform allows investors to trade stock or shares in various crypto-startups, the same way you might trade or invest in cryptocurrencies. The increased confidence that Ethereum and its ICO successes provided entrepreneurs and investors with the growing confidence to reinvest in bitcoin. Ethereum was responsible for kickstarting a rise in bitcoin popularity. The price of bitcoin spiked as high as $10,000 per bitcoin.

The future of Cryptocurrency

Today, Bitcoin and Ethereum are the two most popular cryptocurrencies. Bitcoin is currently trending at over $30,000 per coin whereas Ethereum is trending at over $1000 per coin. The increase in popularity of these decentralized and highly encrypted currencies has led to growing confidence in the idea of decentralized finance in general. An unsupervised market that’s entirely guided by users and moderated on principle, cryptocurrency is redefining what it means to be fiscally responsible. Many investors view cryptocurrency as the future of money, a sign that we are one step closer to a self-moderated world free from the pressures and purview of financial oversight. Whether or not cryptocurrency will remain successful is something only time can tell.

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