Elawyers Elawyers
Virginia| Change

Tax law is the complex body of law that governs how taxes are imposed by the government onto citizens and non-citizens. A tax is defined as a tariff on economic transactions by individuals and corporations. This tariff can be imposed at the federal level, by states, or even by local communities, and is used to fund the government and allow for the provision of government services such as schools and parks. At the federal level, taxes are codified in the Internal Revenue Code, which is updated regularly. Although income taxes are the most widely recognized form of taxes imposed by the government, other common taxes include property taxes, sales taxes, corporate taxes and taxes on the transfer of wealth and assets such as the capital gains tax, estate tax, and gift tax.

Income Taxes

Income tax is the tax that individuals pay the government on the income and wages that they earn every year. These taxes are taken out on a monthly or biweekly basis from an individual’s paycheck in the form of payroll taxes. At the end of the year, these payroll taxes are reconciled with an individual’s overall income, as well as applicable deductions and tax credits, through the filing of an income tax return.  Income and payroll taxes are paid to the federal government, but may also be due at the state and local level as well.  While most individuals pay taxes through the normal federal income tax structure, certain individuals may find that they are subject to the alternative minimum tax.

In addition to individuals, many corporations are also required to pay income taxes on the profit that they receive. This is paid in the form of a corporate tax for most traditional corporations. Certain corporate structures, such as the S corporation, allow profits to “pass through” the corporation and avoid corporate taxation; these entities are taxed through the owners who include the corporate taxes when they file their personal tax returns.

Taxes on the Transfer of Wealth

Whenever money or assets are transferred from one individual to another, the federal government and state governments may be entitled to a portion of that transfer. This can happen when the asset is transferred as a gift while an individual is still alive, and thus subject to the gift tax, or when the asset is transferred after death and subject to the estate tax.  Finally, when certain assets are sold for a profit, such as stocks or a home, individuals must also pay capital gains tax on the appreciation they receive on these items.

Taxes on Goods and Services

Finally, both state and federal governments impose taxes on the sale and ownership of certain products such as goods and property.  Many of these taxes are common throughout our society and a part of our daily lives. For instance, when we purchase items in a store, we typically pay a sales tax that is used to support local governments and fund public initiatives.  Sometimes, included within the price of that good is an additional excise tax, which is a tax imposed on only certain categories of goods, such as cigarettes.  Local governments also receive a great deal of funding from property taxes, which are taxes that property owners, as opposed to users, must pay based on the calculated value of their property.

Recent Topics

  • Alternative Minimum Tax

    The alternative minimum tax is a parallel form of taxation similar to the regular federal income tax system. Much like the normal federal income tax, the alternative minimum tax, or “AMT” has its own system of form and rules on income and deductions....

  • Deducting Small Business Start-Up Costs
    By Stephen Fishman, J.D., University of Southern California Law School | Reviewed by Diana Fitzpatrick, J.D., NYU School of Law

    In most cases, there's nothing "small" about the expenses you have when you start a small business. Dozens of expenses pop up long before you actually open the doors for business. You need a ...

  • Capital Gains Tax

    In addition to taxes that are paid on income each time you receive a paycheck, or the taxes that are added when you purchase a good at a store, taxes can also apply when you sell certain assets or goods. This is known as the capital gains tax. Unders...

  • Deducting Prepaid Expenses under the Cash Basis Method
    By Stephen Fishman, J.D., University of Southern California Law School | Reviewed by Diana Fitzpatrick, J.D., NYU School of Law

    Most individuals and many small businesses use the cash basis method of accounting. Generally, this means you record income when cash is received and you record expenses when cash is paid ou ...

  • Deduction for Business Bad Debts
    By Stephen Fishman, J.D., University of Southern California Law School | Reviewed by Diana Fitzpatrick, J.D., NYU School of Law

    You're in business to make money. That's hard to do when you're not paid by your customers for goods you've sold them. It may not be a total loss, though. You may be able to take a deductio ...

  • Employment Taxes for Farm or Agricultural Workers
    By Stephen Fishman, J.D., University of Southern California Law School

    If you own a farm and hire workers, you're probably an "employer" and need to understand your employment tax responsibilities. ...

  • Estate Tax

    For anyone considering how to organize an inheritance, or pass special property or assets on to children or family friends, it is important to understand the implications of federal estate taxes. Although applicable to only a select number of estates...

  • Excise Tax

    Excise taxes are taxes imposed on certain types of items or groups of goods by the government (federal, state, or local). Unlike sales taxes , excise taxes are typically included in the price of the goods, so it is less apparent to consumers that a t...

  • Tax FAQs

    Very few people find tax laws and regulations intuitive. Moreover, most people are intimidated by the prospect of calculating their tax obligation, claiming any applicable tax benefits, and filing their return. If you are uncomfortable with this proc...

  • Gift Tax

    Much like estate tax , the gift tax is an issue of financial concern for individuals interested in giving part of what they own to another individual, such as a family member or close friend. However, unlike estate taxes, gift taxes specifically appl...

Can't find what you're looking for?

Post a free question on our public forum.
Ask a Question
Search for lawyers by practice areas.
Find a Lawyer