When tax season rears its ugly head again, it’s easy to get overwhelmed. After all, there are lots of papers to keep track of, many factors to consider and tons of terms you should know. Things get even tougher if you’re at risk for delinquency. But you know the old saying: knowledge is power. In reality, taxes are nothing to fear if you know what you’re up against and can get the help you need. In this article, we’re going to answer one of the most common questions people have this time of year: What’s the difference between income tax and property tax? Hopefully, by comparing income tax vs. property tax, you can start to alleviate some of those common anxieties — and find out what is relevant to you.
Simply put, income tax is any tax on income, whether for an individual or a business. The Internal Revenue Service (IRS) collects federal income taxes at the behest of the U.S. government, while states and local governments can set their own income tax laws independently.
As you may have guessed, not all states impose income taxes on their citizens, including Texas.
Property tax is any tax imposed on different forms of property owned by individuals, corporations or other legal entities. The federal government does not collect property taxes, but states do. However, most property tax rates are determined by local governments within each state, rather than the state itself.
At this point, the difference between income tax vs. property tax should be pretty clear. They’re both taxes you (may) have to pay, but one is for your income, while the other is for the things you own.
If you’re a Texas resident, you may be wondering how income tax and property tax should factor into your financial planning. Below, you can see a breakdown of how these taxes might impact you.
As mentioned before, this one is pretty easy: there is no individual income tax in Texas! However, you’ll still need to file your federal income tax return just like everyone else. Additionally, business income taxes do exist in the Lone Star State, known as a “Franchise Tax,” but it’s relatively forgiving. The highest rate is 1% on total earned revenue, and that’s for large businesses making over $10 million.
On the other hand, Texas property taxes absolutely exist. In fact, the average tax rate in Texas is almost .8% higher than the national average. That said, it isn’t the state itself imposing these taxes — the Comptroller does not collect property tax or set any rates. It’s the local taxing units that do, and they use the money to invest in local services, from schools and streets to police and fire departments. An appraiser calculates the property tax rates by evaluating the taxable property within a county, determining its value and comparing that to the needs of the area. The rates don’t often change too much between years, though.
Frankly, it’s a matter of opinion. There is no individual income tax, but property taxes tend to be fairly high. Ultimately, this gives Texas a reputation as being good for business. But for individuals? It might be a different story. The onus of paying property taxes is on each person individually, due on January 31st every single year. For many people, it can be hard to get all of the finances and paperwork in order. If that’s the case, you could be looking at delinquency.
Now that we’ve compared income tax vs. property tax, you might have a better idea of what’s expected of you, especially in Texas. If you have delinquent property taxes to pay, Tax Ease can help. We provide Texas property tax loans that can get you back on track and give you some peace of mind. Contact us today to learn more about what we can do for you!
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