Tax law concerns the legal "rules" for how much the state, local, and federal governments can charge you for taxes each year. The tax code, also known as the Internal Revenue Code (IRC), covers the procedures, policies and penalties for everything to do with tax issues.
Every year, the vast majority of Americans are required to file an income tax return with the Internal Revenue Service (IRS). Even though "tax season" has become an integral part of American life, the process involved can still be confusing and even overwhelming for many Americans. The complex nature of federal tax law is, in part, to blame for the confusion, and many Americans have to use an accountant or CPA to navigate them through tax policy and tax regulations, especially for business tax purposes.
The federal income tax system operates separately from other tax systems such as state tax, local tax, or sales taxes and excises taxes imposed by local governments. Because it is part of the federal system, the U.S. Department of the Treasury uses its IRS bureau to enforce federal tax law.
To give you a better idea of how tax law works, this section provides a number of articles and resources on U.S. code, tax programs, tax forms, audits, and tax problems. You'll find detailed information on filing your federal tax return, claiming exemptions, taking advantage of deductions, dealing with an audit, avoiding tax issues, and getting legal help with your taxes.
Personal Income Taxes
Most Americans are required to pay taxes on their personal income each year. For the purposes of taxation, "income" typically includes any earnings, tips, commissions, dividends, alimony, capital gains, unemployment benefits, IRA distributions, and Social Security benefits received during the tax year.
However, not all income is taxed at the same rate. The U.S. has a progressive tax system. That means each level of income is taxed at a progressively higher rate. For example, let's say you earn $60,000 in a year. Under a hypothetical progressive tax system, the first $20,000 would be taxed at a marginal tax rate of 10%, while the next $20,000 would be taxed at a rate of 20%, and so on.
Taxpayers can also apply deductions and credits to lighten their tax burden. Deductions are expenses that may be subtracted from your taxable income. Common deductions include student loan interest, medical and dental costs, property taxes, mortgage interest, and college tuition. Similar to deductions, tax credits reduce taxable income for certain groups of individuals, like first-time homebuyers and people caring for dependents.
Tax Lawyers and Common Issues
If you have questions about your tax return, a tax lawyer can help you in a number of ways. A tax lawyer will be able to identify key deductions, exemptions, and credits that could make a significant impact on your tax burden. In addition, a tax lawyer will be able to advise you on the type of tax-related activities that are illegal or that may trigger an audit by the IRS.
On the other hand, if you fail to file taxes or file your taxes improperly, you may need a lawyer to represent your interests. The IRS not only audits taxpayers who are under suspicion or who made disclosure errors in their paperwork, but also those who are part of a group targeted for greater scrutiny. If you become the subject of an IRS audit, you may want to consult with an attorney about the best course of action.
If the audit doesn't go your way, you can appeal the IRS's decision to the U.S. tax courts. Many lawyers, i.e., tax attorneys, specialize in defending taxpayers in federal court. If your case does go to tax court, it's in your best interest to find a tax professional who is experienced in handling tax appeals. A tax lawyer may be able to negotiate with the IRS on your behalf to reach a settlement, or "offer in compromise."
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