Tax law are the laws that oversee government levies on financial and economic transactions, commonly called taxes. Tax lawyers help clients in this area. A well trained tax lawyer may help to settle back taxes, lift IRS bank levies, stop tax liens, oversee or avoid IRS audits, lift wage garnishments and help with tax sheltering.
Primary taxation in the United States of America includes taxes on wealth, income and capital gains. Also included are sales taxes, property taxes, medicare, social security, tariffs/ duties, payroll taxes, estate taxes, gift taxes, unemployment taxes, licenses, occupational taxes, penalties, and fees. Your tax lawyer or accountant can help you determine the taxes you are obligated to pay.
Keeping up with the individual taxes is complicated, but when the determination of income, deductions, and the ever changing tax credit and loopholes are included, the field of tax law becomes nearly as convoluted as international law. Tax lawyers are required to be very dedicated and also are usually near the top of their class. They must stay up-to-date on the constantly changing tax law environment and the best may try to look into future changes in order to report income before tax increases or report losses anticipating tax decreases.
Tax payers including individuals, corporations, partnership members, estates, trusts, and beneficiaries must pay income tax in the USA. The taxable income amount equals gross income less allowable tax deductions and credits.
The Internal Revenue Code governed by the Internal Revenue Service defines gross income as all income from whatever source derived. They also give lists of examples though the lists are not all inclusive. Income is not defined in the law or regulations. However, the Supreme Court stated, “Income may be defined as the gain derived from capital, from labor, or from both combined, provided it is understood to include profit gained through a sale or conversion of capital assets.” In determining the gross income on proper disposition the total proceeds minus the capital value or cost basis is used.
Gross income does not only include a financial transaction, but also includes service or property trades. Also included in gross income are:
- Wages, fees for services, tips, and similar income.
- Interest received including imputed interest on below market and gift loans.
- Dividends and capital gain distributions from corporations.
- Gross profit from sale of inventory.
- Gains on disposition of other property.
- Rents and royalties from use of tangible or intangible property.
- Alimony and separate maintenance payments.
- Pensions, annuities, and income from life insurance or endowment contracts.
- Distributive share of partnership income or pro rata share of income of an S corporation.
- Tax refunds
- Any other income from whatever source. Even income from crimes is taxable and must be reported, as failure to do so is a crime in itself.
Although gifts and inheritances are not considered the recipients income under US law, the donor or the estate of such may be imposed a gift or estate tax.
Exemptions and Deductions:
The US system allows reduction of taxable income through deductions. When goods are sold, the cost of those goods directly reduce the gross income. Also included as deductions are expenses incurred while doing business. A good tax lawyer and a well versed accountant can save a business or individual a tremendous amount of money and keep the IRS from putting them in jail or imposing heavy fines. Some of the worlds wealthiest men pay the least taxes (on a percentage basis) because of a well built corporate structures and some of the world’s best tax lawyers and accountants. The timing of the deductions that are included on income goes back to the previous point. Take for example Barack Obama’s 2011 desire to raise taxes on the wealthiest Americans. It may be a great time for those men and women who are in the wealthiest teir to start taking huge profits before the increase occurs.
Some types of business expenses including property (land, vehicles, equipment, etc.) are deductible over a period of years rather than when incurred. The cost of such assets is recovered through deductions for depreciation or amortization. Depreciation and amortization deductions can be postponed or moved forward depending on the method of computing. Example methods include but are not limited to: Straight-line, Declining Balance, and Activity Depreciation.
One personal exemption is allowed per taxpayer, and additional deductions are allowed for each child or certain other individuals supported by the taxpayer. The standard deduction/ exemption varies by filing status. Itemized deductions by individuals include home mortgage interest, property taxes, other taxes,
donations to charity, medical expenses, and certain other amounts. Only the best tax lawyers and accountants can/ will be able to keep up with this constantly changing environment.
From IRS Publication 17, Chapter 29: Personal exemptions, the standard deduction, and itemized deductions are limited above certain income levels.
There is a lot more to tax law than what is discussed above. It is a field that requires years of dedication to master being a tax lawyer. If a tax attorney doesn’t continue to study and keep up with the changing laws they can become obsolete within a very short time..