Introduction

Tax law is an ever-evolving area of law that touches on different spheres of our lives. Taxes are everywhere – from income tax to customs duties, from property tax to capital gains tax. As a result, tax law is one of the most complex and challenging areas of law to comprehend.

This article delves into different aspects of tax law, highlighting the facts that taxpayers need to know. We will cover the basics of tax law, how taxes are collected, different types of taxes, tips for tax compliance, and recent updates to tax law.

Basics of Tax Law

Tax law governs the process of collecting taxes from individuals, businesses, and organizations. The U.S Constitution gives Congress the power to impose taxes for the general welfare of the nation. The Internal Revenue Service (IRS) is the federal agency responsible for enforcing tax laws and collecting taxes.

The IRS is also responsible for issuing guidance on tax laws, such as regulations, revenue rulings, notices, and announcements. Taxpayers must comply with the Internal Revenue Code, which is the body of tax laws enacted by Congress.

How Taxes are Collected

Taxes are collected through a variety of methods, including withholding, estimated tax payments, and tax return filings. The most common method of tax collection is through withholding. Employers withhold a portion of employee’s salaries and wages and remit it to the IRS on their behalf.

Estimated tax payments are made by individuals who are self-employed or have income that is not subject to withholding. These taxpayers must make quarterly estimated tax payments based on their projected income and tax liability.

Taxpayers also file tax returns reporting their income and tax liability. Individuals file Form 1040, while businesses file different tax returns like Form 1120, Form 1065, and Form 1041.

Different Types of Taxes

There are various types of taxes, including income tax, payroll tax, sales tax, and property tax.

1. Income Tax–Income tax is tax levied on an individual’s income, including salaries, wages, and investments. Income tax has two categories – federal and state or local. The federal government collects federal income tax while the state and local governments collect state income tax.

There are six tax brackets in which tax is charged at different rates, ranging from 10% to 37% of taxable income. Taxpayers can reduce their federal income tax liability by claiming deductions, credits, and exemptions.

2. Payroll Tax–Payroll tax is a tax on both employers and employees. Employers withhold payroll tax from their employee’s salaries and wages, while the employer also pays a payroll tax based on the employee’s salary.

The payroll taxes are made up of two components: Social Security tax and Medicare tax. The employee pays 6.2% in Social Security tax and 1.45% in Medicare tax, while the employer pays a matching amount.

3. Sales Tax–Sales tax is a tax levied on the sale of goods and services. Sales tax rates vary by state, and some states do not have a sales tax. Sales tax is paid by consumers at the point of sale and is collected by retailers who remit it to the state.

4. Property Tax–Property tax is a tax levied on real estate property, including land and buildings, and personal property, such as vehicles and boats. Property taxes are assessed by the local government and vary by location and the value of the property.

Tips for Tax Compliance

1. Keep Accurate Records– Taxpayers should keep accurate and complete records of their income and expenses. This documentation helps to substantiate any claims made on the tax return, such as deductions, credits, and exemptions.

2. File Tax Returns on Time– Taxpayers should file their tax returns on time to avoid penalties and interest charges. The IRS charges penalties for late filing and late payment of taxes.

3. Seek Professional Assistance– Taxpayers should seek professional assistance from tax professionals like accountants, tax attorneys, and enrolled agents. These professionals can help with tax planning, tax preparation, and representation before the IRS.

Recent Updates to Tax Law

The Tax Cuts and Jobs Act (TCJA) of 2017 made significant changes to tax law, affecting individuals and businesses. Here are some of the key provisions in the TCJA:

1. Changes in Tax Brackets– The TCJA reduced the number of tax brackets from seven to six and lowered tax rates for every bracket.

2. Standard Deduction– The standard deduction was nearly doubled for both individuals and married couples, reducing taxable income.

3. Personal Exemption– The personal exemption was eliminated, which used to reduce taxable income for each exemption claimed on a tax return.

4. Child Tax Credit– The child tax credit was expanded from $1,000 to $2,000 per qualifying child, and the eligibility threshold was increased.

5. Business Tax Changes– The TCJA introduced several changes to business taxes, including a reduction in the corporate tax rate from 35% to 21%, a new 20% deduction for pass-through businesses, and the elimination of some business deductions.

Conclusion

Tax law is a complex and ever-evolving area of law that affects the nation’s economy and every individual’s financial life. Understanding the basics of tax law, how taxes are collected, and different types of taxes can help taxpayers comply with tax laws and reduce their tax liabilities.

It is crucial to keep updated with recent developments in tax law, such as the changes introduced by the TCJA. Seeking professional assistance from tax professionals is essential, especially during the tax preparation and filing season.

What are Tax Laws?

Tax Laws are required rules and regulations that exist in the legal realm of tax and taxation. Tax Laws address the wide range of financial withholdings, requirements, and procedures latent within the gross amount of cost, earnings, or applied value with regard to tax payments required by a taxpayer. Tax Laws address a variety of taxes and taxation procedures; within individual tax processesand procedures exists specified circumstances applicable to the collection and assessment process of that specific tax.

Types of Tax Laws

The following are considered to be some of the most common within the realm of Tax Laws

Types of Taxes

A progressive tax is a type of tax that is considered to fluctuate in accordance with any or all financial increases both in earnings and values; in contrast to a fixed tax rate, the tax laws surrounding a tax that is progressive in nature illustrate a larger tax withholding to exist in tandem with larger earnings – in the United States, income tax laws operate as a progressive taxation system

A regressive tax is considered to be a tax by which the bulk of its respective increases are presumed to be undertaken by individuals earning the lost amount of total income; while a regressive tax may not typically appear as an initial tax burden, the implicit costs within certain taxation may gradually amount to substantial costs and withholding(s) – proposed tax laws implemented to protect those affected by regressive taxation may claim that the upkeep of taxable items far outweighs their initial purchase price

A proportional tax is considered to be a taxation system that operates from tax laws regulating – or preventing – any fluctuation of withholding contingent of individual income; conversely, proportional tax laws mandate that individuals are required to pay taxes strictly on the items, products, and services that they consume – a proportional tax is uniform with regard to income and earning withholding(s)

Direct Tax Laws vs. Indirect Tax Laws

Within the United States, taxes are typically classified by one – of two – primary classification(s); indirect taxes and direct taxes. The nature of this classification presents itself in the method undertaken by the entity responsible for the collection of the individual tax in question. Tax laws and regulation illustrate that a direct tax is any tax that is submitted by an individual – or entity – directly to the Federal Government; conversely, indirect taxes are submitted to a third-party, assessed, and then submitted by the respective intermediary to the Federal Government:

The Direct Tax procedure is governed by tax laws that mandate, authorize, and oversee taxation that includes income tax; income tax is submitted from the individual taxpayer(s) to the government in a direct fashion

The Indirect Tax procedure is governed by tax laws that address taxes uncured through commercial activity, purchases, and retail endeavors; upon a commercial or consumer purchase, applicable taxes are submitted by the taxpayer to the merchant in question – subsequently, the merchant will forward monies rendered from taxation to the Federal Government

Tax Laws and the Internal Revenue Service (IRS)

The Internal Revenue Service (IRS) – The Federal Department of the United States government that administers, maintains, oversees, and regulates the fulfillment of taxation – can be contacted through their toll-free telephone number: (800) 829-1040.