Property Taxes vs. Income Taxes: Understanding the Difference

 

As residents of Long Island, we all know how important it is to pay taxes, but sometimes, it can be hard to understand what exactly we are paying for. Two main types of taxes that we are all familiar with are property taxes and income taxes, but do you know the difference between them? Let’s explore the key differences between property taxes and income taxes to help you better understand where your money is going.

What Are Property and Income Taxes?

First, let's define what property taxes and income taxes are. Property taxes are taxes that are levied on real property, such as homes, land, and buildings. These taxes are calculated based on the value of the property and are typically paid to the local government. Income taxes, on the other hand, are taxes imposed on income earned by individuals or businesses. These taxes are collected by the federal government and vary depending on the amount of income earned.

The Differences Between Property and Income Taxes

• One of the key differences between property taxes and income taxes is the way they are calculated. Property taxes are calculated based on the assessed value of the property, which a local assessor determines. Income taxes, on the other hand, are calculated based on the amount of income earned by an individual or business, with different tax rates applied to different income levels.
• Another difference between property taxes and income taxes is the way they are used. Property taxes are typically used to fund local government services, such as schools, public works, and police and fire departments. Income taxes, on the other hand, are used to fund a wide range of government programs, including Social Security, Medicare, and national defense.
• It is also important to note that property taxes are levied annually, while income taxes are set on a yearly basis. This means that property owners must pay taxes on their property every year, regardless of whether they have made any income or not. Income taxes, on the other hand, only apply to those who have earned income in a given tax year.
• Finally, one of the most significant differences between property taxes and income taxes is the way they are affected by deductions and credits. Property taxes may be deductible on federal income tax returns, but only up to a certain amount. Income taxes, on the other hand, offer a wide range of deductions and credits that can significantly reduce the amount of taxes owed.

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