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 What is Income Tax Law?

The 16th Amendment to the United States Constitution was passed by Congress in 1913. One of the main purposes of this amendment was to provide Congress with the power to create and collect income tax.

The 16th Amendment led to the creation of the Internal Revenue Code (IRC), which is enforced by the Internal Revenue Service (IRS), which is the federal government agency that is responsible for collecting taxes.

The IRC provides the main standards for tax laws, which includes federal, state, and local tax regulations. Pursuant to the IRC, income tax is a type of tax which the government imposes on an individual’s personal income.

For example, when an individual receives a paycheck, they may notice that a certain percentage is deducted from the total amount. This deduction typically accounts for different levels of income taxes and state or federal programs, such as Social Security benefits.

If an individual’s employer deducts income taxes from their paycheck, it will be reflected when the individual files their state and federal taxes for the year. This is why individuals sometimes receive tax refunds or excess payments after they file taxes.

If an individual receives a refund, it means that they paid more income tax than was necessary for that year. Not everyone, however, will be subject to income tax laws.

For example, the federal government does not collect income tax from individuals who are unemployed. There are certain states that may not subject their residents to state income taxes.

If an individual desires to learn more about federal income tax laws and the rules for paying income taxes in their state, they should contact a local tax law attorney for further advice. A tax law attorney will also be able to advise them regarding their individual rights and protections under federal and state income tax laws.

What Happens if I Don’t Pay All of My Taxes?

Individuals who do not pay all of their taxes may be subject to fees. If the individual has a legitimate reason why they did not pay their taxes, they may be able to negotiate for an extension or set up a payment plan to pay taxes they owe in monthly installments.

If, on the other hand, a taxpayer does not have a valid reason for why they did not pay all of their taxes or if they deliberately avoid paying their taxes, they may be charged with a felony. Generally, it is illegal to refuse to pay taxes.

An individual who intentionally tries to avoid paying taxes to the IRS is committing tax evasion. Tax evasion is a felony offense which may lead to serious fines as well as prison sentences for up to 5 years or more.

In addition, taxpayers who only pay a portion of the taxes that they owe may be subject to an audit by the IRS. An audit is essentially a review of an individual’s financial information and their various monetary accounts.

The IRS will use an audit to confirm that a taxpayer is accurately reporting their taxes as well as complying with federal tax laws. The results of an IRS audit may lead to:

  • Criminal consequences;
  • Amended tax returns; or
  • No changes for the taxpayer.

What is the Alternative Minimum Tax?

The alternative minimum tax (AMT) began as an additional tax on those individuals whose income rose above a certain amount. The United States federal government created the AMT in 1969 after realizing that the majority of high income earning households were hardly paying any taxes following the regular tax guidelines.

Although the AMT has undergone many changes since it was created, its purpose is still to prevent individuals from avoiding taxation. Currently, the AMT operates as an alternative method for determining an individual’s income tax depending on how much money they earned that year or how many deductions they received.

The AMT serves as a minimum amount which must be paid despite an individual’s exemptions or deductions.

Do I Have to Pay the Alternative Minimum Tax?

Individual filers, married filers, and corporations can all be subjected to the AMT. It is important to note, however, that simply because the AMT applied in one tax year does not mean that it applies every year to the same taxpayer.

A taxpayer will begin with the standard income tax return to determine whether the AMT applies. There are a few deductions in the AMT, just as there are deductions in regular taxes.

The examples of deduction differences in the AMT include:

  • There is no standard deduction in the AMT;
  • There are not any personal exemptions in the AMT;
  • Under the AMT, medical expenses must exceed 10% of an individual’s income in order to claim the deduction in contrast to the 7.5% in the regular tax formula; and
  • Investment interest may be deductible in the AMT after adjustment;
    • non-business interest, however, is not deductible.

How Do I Lessen or Avoid Paying the Alternative Minimum Tax?

There are several ways an individual can lessen or avoid paying the alternative minimum tax, including:

  • Maintain an income which falls below the income guideline for the AMT. For example, taking a capital gains for the maximum amount in one year and paying the AMT may allow the taxpayer to avoid the AMT in subsequent years;
  • Take advantage of the following to help lower the taxpayer’s AMT liability:
  • If an individual is already paying a high amount in state and local taxes, they may be able to structure the previous years’ taxes into one payment so that they benefit their AMT liability even if there are penalties to a delayed lump sum payment; and
  • If the taxpayer has substantial medical expenses but not quite at 10% of their income, they can try to arrange for a payment option that allows them to pay a larger amount in the same tax year in order to take advantage of the deduction.

Where Can I Go for Help with Planning for the Alternative Minimum Tax?

The tax system in the United States is a complex system. Many taxpayers find filing their taxes overwhelming each year.

To maximize your savings and carefully plan for your tax liabilities, it may be helpful to hire a tax professional such as an accountant. If you have issues with the IRS related to the AMT and you may be facing legal repercussions, it is in your best interest to consult with a tax law attorney to explore your options.

Your tax attorney can also assist you if you are experiencing issues paying your taxes for another reason. This especially applies if you have not paid your income taxes for several years.

Your attorney can negotiate with the IRS on your behalf and can negotiate for an offer to compromise. The IRS may be willing to extend your payment deadline or create an installment plan agreement.

In addition, your attorney can petition the United States Tax Court if you believe there is an error with your tax return and provide representation for you in court. If you are facing an IRS audit, your attorney can ensure that it is conducted properly that your rights as a taxpayer are protected.


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