Tax Law is a broad subject encompassing everything from state and federal income, payroll, and sales taxes, to wills, trusts, estate planning, and IRS audit protection.
INCOME TAX LAW
While some states (i.e. Florida & Nevada) do not have an income tax, all residents and all citizens of the United States are subject to the federal income tax. However, not everyone is required to file an income tax return. Individuals and corporations are both required to file income tax returns. While businesses are subject to may of the same laws as the individual taxpayer, corporations are also covered by an intricate body of rules specific to the nature of corporations.
ESTATE AND GIFT TAXES
One of the oldest and most common forms of taxation is the taxation of property held by an individual at the time of their death. Such a tax can take the form, among others, of estate tax (a tax levied on the estate before any transfers). An estate tax is a charge upon the decedent’s entire estate, regardless of how it is disbursed. An alternative form of death tax is an inheritance tax (a tax levied on individuals receiving property from the estate). Taxes imposed upon death provide incentive to transfer assets before death.
Gift tax laws are generally designed to prevent complete tax avoidance by this route. The Federal Estate Tax is integrated with the Federal Gift tax so that large estates cannot be shielded from taxation by lifetime giving. Many states also impose an estate tax.
Generally, a Gift Tax applies to any transfer of value made without receiving compensation in return, and without regard to intent.
Sales tax, also known as “gross receipts tax”, is imposed by state and local governments on the sale of products and services. Depending on the geographic location of your business, certain goods and services may or may not be subject to a sales tax.
Sales taxes are levied on the gross receipts, or total amount of money a business takes in. Deductions are not permitted for the business’ cost of the goods or services.
Sales taxes don’t just apply to merchandise. Many service businesses are also required to pay gross receipts taxes on the money they take in from providing services. Depending on how the state law is constructed, the service provider may or may not be allowed to pass this tax on to the customer as an addition to his sales price.
There are exemptions to the sales tax, especially in cases of non-profit organizations or to prevent taxes from being collected twice on the same item.
Check with your tax attorney, or state’s taxation and revenue department, on what products and services are subject to gross receipts taxes. They can also let you know the process of claiming exemptions and under what conditions exemptions apply.
Payroll taxes are state and federal taxes that an employer is required to withhold and pay on behalf of his employees. Employers are required to withhold state and federal income taxes, and social security and Medicare taxes from employee wages. Employers must also pay a matching amount of social security and Medicare taxes for employees and pay State and Federal unemployment tax.
For information on payroll tax requirements, check with your tax attorney, or reference IRS publication 15, Circular E and contact your state’s Taxation and Revenue Services Department.
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