Tax Law

Tax Law
Taxation is the process whereby charges are imposed on individuals or corporations by a state or a functional equivalent of a state to raise funds for public purposes and state administration. Laws regulating the process of taxation are known as Tax Laws.
The U.S. tax laws are quite complex involving administrative set up at both federal and state level, which goes on simultaneously without any overlapping. Federal and state tax laws are completely separate and each has its own authority and procedure to levy and collect taxes on different subject matters. The federal government doesn’t have the right to interfere with state tax laws. Each state has its own tax laws. Within the state there may be several jurisdictions that also charge taxes. For example cities and counties in the individual states may levy taxes to improve parks or schools, or pay for police, fire departments, local roads, and other
services.

US Federal Tax Laws:

The US Federal tax system is drawn on Internal Revenue Code of 1986 (title 26 of the United States Code) and is governed by the Internal Revenue Service, a bureau of the Treasury.
While the main intent of the law is to provide revenue for the federal government, the tax code is frequently used for public policy reasons i.e., to achieve social, economic and political goals. For example, to
encourage home ownership, the tax law provides a deduction for mortgage interest expense on debt secured by primary residences. 

Federal tax includes following:

1. Federal Income Tax – Income tax is probably one of the most well known forms of taxation. Depending on individual income, marginal tax rate ranges from zero to 35%. The tax rate is lower as a percentage of the income for lower-income individual and higher as a percentage of the income for higher-income individuals. Hence, it is progressive by nature. 

One
unique aspect of federal income tax in the United States, is that it uses citizenship in addition to residency in determining whether a person’s income is subject to taxation. All U.S. citizens, including those who do not live in the United States, are subject to U.S. income tax on their worldwide income.

2. Social Security Tax
- Social Security Tax is governed by Federal Insurance and Contributions Act (FICA). This tax is 6.2% of an employees’ income paid
by the employer, and 6.2% paid by the employee (12.4% total). Self-employed workers must pay both halves of the Social Security tax
because they are their own employers. While calculating income, unearned income like interest from bonds, money market and bank
accounts, dividends from REITs and common stocks, rents, and royalties are not subject to the Social Security tax.

3. Medicare Tax
- The purpose of Medicare tax is to fund the Medicare program, a health insurance program for the elderly and disabled. 1.45% of the employee’s income is paid by the employer as Medicare tax, and 1.45% is paid by the employee. For Self-Employed people, Medicare taxes are fixed at 2.9% on all earnings. Same as Social Security Tax, unearned income is not subject to the Medicare tax.

4. Other Payroll Taxes
- There is payroll tax to support unemployment insurance, which is 1.2% of the first $7000. But, in order to avoid double taxation, in state where there is unemployment employment scheme, no tax is levied. Similarly, U.S. also has a tax to pay for retraining of displaced workers, which is 0.1% of the first $7,000 of income, and it is assessed only on employers.

5. Federal Corporate Income Tax – A
business entity is subject to federal corporate income tax if it is a corporation which is not an S-corporation if it is either formed in the United States or it conducts a trade or business in the United States. Corporate income tax is not a tax on corporate income. Instead it is tax on “taxable income”, which is calculated by deducting most business
expenses.

Corporate earnings are subject to double taxation. It is because corporations’ pay taxes on their earnings and then with after tax income they pay stockholders dividends, which are subject to capital gains tax.

6. Transfer Tax – It consists of the gift tax, estate tax and the generation skipping transfer tax (“GSTT”). The gift tax is a tax levied on wealth transfers during the transferor’s life while the estate tax is levied on transfers made after the transferor’s death. The GSTT is a tax in addition to the gift and estate tax and is levied on transfers made during life or after death to individuals removed by more than one generation from the transferor.

7. Excise Tax – Federal excise taxes on gasoline and other fuels used by vehicles are levied.

US State Tax Laws:

In US all states are having a plenary power to assess taxes on their citizens and on activities that occur within their borders, so long as those taxes do not infringe on a power reserved for the federal
government. However, states cannot impose taxes designed to impede
interstate commerce or influence international relations. States are also prohibited from assessing taxes in ways that discriminate on the basis of race, gender,
religion, or nationality.

Sate Tax includes:

1. Sales Tax
- Sales tax is a state tax and is levied on sales. It varies from state to state as well as within the state. For example, NY State Sales Tax is 7% and NJ is 3%, but Albany has 8% sales tax while Syracuse has only 7%. Within the state, municipalities have the right to raise the sales tax above the state limit. There are also other rules surrounding sales tax, such as which items are taxed and which are not. For example, in NY gum is taxed, but milk is not. In NJ food is taxed, but clothes are not. All this makes state sales tax very complex. Some states like Delaware, Oregon, New Hampshire, etc. have no state sales tax.

2. State Income Tax – Some state like New Hampshire and Tennessee, etc. tax on interest and dividend income.

3. Property Tax
- Many states levy personal property taxes, which are annual taxes on the privilege of owning or possessing items of personal property within the boundaries of the state. Automobile and boat registration fees are a subset of this tax; however, most people are unaware that practically all personal property is also subject to personal property tax. Usually, household goods are exempt; but virtually all objects of value are covered, especially when regularly used or stored outside of the taxpayer’s household.

Attorneys specializing in Tax Laws:

Attorneys
specializing in Tax laws have insight and knowledge in areas such as accountancy, taxation, trade & commerce, etc. Attorneys who practice tax laws help clients comply with the tax laws and filing tax return s. These attorneys represent clients in IRS and in matters that are committed to court adjudication.

Individuals
looking for an attorney specializing in tax laws need to find someone who is well versed in the requirements of the Internal Revenue Code of 1986, Federal Insurance and Contributions Act (FICA) or other state tax laws. A good attorney specialized in tax laws are well versed of accountancy and trade practices. He can guide on tax planning and management in such a way to save tax in legal way.

If you are having an issue with the taxing authority, you need the advice of competent counsel.

CLICK HERE TO SPEAK WITH A TAX LAWYER IN YOUR AREA

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