Want to strike fear in people hearts? Just mention the IRS! It's one of the most misunderstood government agencies. Our taxes support government operations, and social programs. Indeed without income taxes our health, education, national security and public welfare would be severely compromised or fail. Income taxes are the largest source of federal income and through transfers are a significant supplement to states, counties and municipalities. According to the US Government, income taxes represent approximately one third of all tax revenue collected in United States in 2010. Taxes affect many different aspects of business, government, personal and political decisions. A solid understanding of tax functions is fundamental and extremely useful for taxpayers. It's important to pay your taxes, but it's even more important to not pay too much.
A Tale of Three Accountants
Once upon a time there were 3 accountants. Each was successful and ethical. Our hero, John Taxpayer goes to the first one, and the result is he owes $ 1,000. He decides to get a second opinion, and the result is a $ 500 overpayment. His friend recommends yet another tax preparer, and the outcome is a $ 2,500 refund. How can this happen? The answer is, it happens every day, although the taxpayer does not have the benefit of comparison, because he will typically go to one accountant and not know if his return was filed accurate, and to his benefit. In our example, each return was legally prepared and fully in compliance with the tax code.
Who cares about taxes?
Every taxpayer should care about taxes because they influence everyday decisions including all kinds of investments, estate planning, educational commitments, amount and timing of expenses and even prospective job offers. Moreover, the role of taxes is not only limited to personal financial decisions; taxes play an extremely important role in business world. For example: if the taxpayer considers opening a business. The organizational form of the business should be decided at least partially, on the tax implications, because taxes represent significant transaction costs and can have a significant impact on reported profits. Individuals and businesses should factor potential tax implications into their individual and business economic and financial decision-making processes. Decisions should consider costs and benefits from tax strategy and tax implementation in everyday life or the business cycle.
Complicated Laws and Rules
The tax codes are intentionally complicated. This is the result of congressional actions to benefit certain categories of individuals and businesses. The tax laws reflect a patchwork of special interests; they're more political than business-like or fair. Your task is to use every exemption, deduction, and rule to your advantage so that you will minimize your tax liability. The government job is to make sure you comply with the law and pay your "fair share." Every taxpayer should be aware that tax laws in United States are based on the all-inclusive income concept. The all-inclusive income concept means that every taxpayer is obligated to include as taxable income all realized income from …