Taxes are payments imposed by governments on individuals and businesses to fund government programs. They have been a mainstay of governance throughout history, and are collected to pay for services like protecting citizens with an army or police, road building, education, and other public goods and activities. They may be in the form of direct (income or consumption) or indirect taxes such as sales and value-added taxes, sin or excise taxes, or tariffs on imports.

Indirect taxes are added on transactions for goods and services to shift the cost of a good from one payer to another. These are typically collected by retailers, manufacturers and importers. Other forms of indirect taxation include excise taxes on certain products, such as alcohol, tobacco or fuel and sin taxes. A carbon tax is an example of a sin or excise tax that seeks to offset externalities, such as pollution or the cost of infrastructure maintenance.

The use of taxes enables governments to raise funds for governing without extensively interfering with the market and private business; this is considered the best option for a free-market economy that promotes efficient production and innovation by companies and people. However, taxes can still have adverse effects on economic efficiency and competition by reducing the amount of money available for investment.

Understanding the different ways your money gets taxed can help you stay in good standing with the IRS and position yourself for greater financial security. There are many tools you can use to calculate prices before and after tax, including the Sales Tax Calculator.