Tax law is an area of the law that encompasses the rules, regulations, and policies that govern the tax process.
The tax process including the imposition of tax by the government on:
There are many different types of tax law, including income tax law, corporate tax law, and international tax law.
Federal Income Tax Law
Federal tax law is based on the Internal Revenue Code (IRC), which is in Title 26 of the U.S. Code. Federal income tax law involves the rules and regulations surrounding the federal income tax, which is a charge on almost all Americans or businesses that have earned income.
Federal income tax applies to everyone, including those who are not U.S. citizens, as long as they have earned income from sources situated in the U.S. The reason for the income tax is to increase revenue that is needed to operate the government, and to offer services.
The majority of taxpayers pay their taxes by having them withheld from their paychecks. Employers must withhold part of their employees’ wages and send that amount to the IRS.
Sometimes, the amount of tax withheld is insufficient to cover the entire amount of federal income tax liability, in which case the taxpayer must send a payment to the IRS by April 15th. If you are unable to pay the entire amount of federal income tax owed, then you can inform the IRS, and arrange to make installment payments.
Corporate Tax Law
Corporate tax law pertains to the ways in which incorporated entities are taxed. Such entities include businesses and not-for-profit charities. The laws of corporate taxation are different from those involving the taxation of individuals, and in certain instances, can have an impact on individual taxation. An example of this is the pass-through taxation of S corporations. While the corporation is not required to pay taxes, its shareholders must bear that responsibility instead.
Also included in corporate tax law is the taxation of various types of corporations, including not-for-profit companies and partnerships. For instance, a not-for-profit corporation that is involved in charitable or religious activities could be eligible for 501(c)3 tax-exempt status.
Partnerships are treated by the IRS as pass-through entities, meaning that all of the partnership’s profits and losses "pass through" to the partners, who are taxed on their share of the profits. If the partnership realized a loss, then the partners deduct their portion of the loss by stating it on their individual tax returns.
International Tax Law
International tax law concerns the ways in which individuals and businesses are affected by the tax laws of various countries. While some countries have income tax systems that impose tax only on local income, other countries impose tax on worldwide income.
Usually, when there is a tax on worldwide income, there is a reduction of tax or a provision for foreign credits for taxes paid to other jurisdictions. Corporations that have offices in various countries, often seek the advice of international tax specialists in order to lessen their worldwide tax liabilities. Both lawyers and accountants may offer advice on issues relevant to international tax.
Tax evasion occurs when a corporation, individual, or trust deliberately underpays its taxes. It involves the misrepresentation by taxpayers of their financial status in an effort to reduce their tax liability. Such dishonest tax reporting could include declaring lower amounts of income, profits, or gains than those that the taxpayer really earned, or overstating deductions. Tax evasion differs from tax avoidance, which is the lawful use of tax laws to lessen your tax liability.
Tax law is very complex and complicated, and your tax situation may require the services of a tax attorney or tax accountant. If you have a tax issue to resolve, you should consult a tax attorney or tax accountant.
How Is Tax Liability Determined?
When determining your tax liability, the government has specific filing requirements based on your filing status and income.
The income from estates and trusts is also subject to tax, based on the income bracket of the estate or trust. For instance, if your estate or trust has taxable income that is more than $1,500, but not more than $3,500, then the a mount of the tax is $225 plus 28% of the amount that exceeds $1,500.
How Can I Minimize My Tax Liability?
If you would like to minimize your tax liability, there are a number of credits that you can take that will offset the amount of tax you owe. Such credits include the credit for child and dependent care expenses you incur so that you can be gainfully employed, credit for the elderly and permanently and totally disabled, the child tax credit, and the adoption credit.
Resolving Disputes with the IRS
Tax law is a very complex area of the law that is constantly changing. In addition to the federal tax laws that are part of Title 26 of the U.S. Code, there are other federal tax laws in Title 26 of the Code of Federal Regulations, rules recommended by the Internal Revenue Service (IRS), revenue rulings set forth by the IRS, private letter rulings given out by the IRS, releases issued by the IRS, and decisions rendered by the federal tax court.
When disputes arise between taxpayers and the IRS concerning underpayments of tax, the U.S. Tax Court hears such cases. Although the U.S. Tax Court is located in Washington, D.C., its judges travel throughout the country to preside over trials. Once a decision is rendered by the Tax Court, the Federal District Court of Appeals can hear any appeals, and the U.S. Supreme Court has final review over the case.
Should I Contact a Tax Attorney?
Tax disputes and controversies, including audits and IRS administrative appeals, are handled by tax attorneys, who can represent you throughout the process. They can also help you understand the many complex and confusing laws in this practice area. If you are involved in a tax dispute or controversy, you should consult a tax attorney.