Income tax lawyers specialize in filing income taxes for individuals and businesses. Tax lawyers also advise clients on complex tax issues and handle disputes before the Internal Revenue Service and state taxing agencies.
To calculate income tax, individuals must calculate their gross income, adjusted gross income, and taxable income.
1) What Is Gross Income?
Section 61 of the Internal Revenue Code defines gross income as "all income, from whatever source derived." In other words, gross income is any income earned during the year, including wages, profits from stocks, rental income, and even income from illegal activities. Not all income is taxed, but determining gross income is the first step in calculating taxable income.
2) What Is Adjusted Gross Income?
Adjusted gross income (AGI) is a taxpayer’s gross income less certain deductions, including:
3) What Is Taxable Income?
Taxable income is the amount of income subject to tax. Taxpayers calculate their taxable income by subtracting their exemptions and standard or itemized deductions from their AGI. It is important to note that taxpayers can take either the standard deduction or the itemized deduction, but cannot take both. Taxpayers usually take whichever deduction yields the greatest tax reduction. Also, some income is not subject to tax, such as life insurance payouts or certain profits from the sale of a principal residence.
Once the taxpayer has calculated their taxable income, the taxpayer can then calculate their tax. Income tax is calculated by applying the taxpayer’s current tax rate to his or her taxable income. Tax rates vary depending on the taxpayer’s income, marital status, and dependents.
Tax issues can be complex and may require professional assistance. Tax fraud can result in serious consequences, such as substantial fines or even prison time. If you have failed to pay taxes for several years, have substantial back taxes, or are being audited, contacting a tax lawyer may help.
Last Modified: 11-01-2016 10:09 AM PDTLaw Library Disclaimer
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