Tax Law Blog | IRS Tax Attorneys

Make sure to get your maximum refund. Why should the IRS get to keep a penny of your money?

For 2007, you got to take off as much as $3,400 from your income for each qualified exemption you have, up from $3,300 in 2006. (The level rises to $3,500 in 2008.) Despite myths to the contrary, these include children who are full-time students under age 24, regardless of how much income they may have. As your income increases, your exemption deduction may decrease. For 2007, on a joint return, your exemption deduction were phased out between adjusted gross income of $234,600 and $357,100.

For singles, the numbers are between $156,400 and $278,900. With the exemption rising in 2008, the phaseouts increase as well.

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If you, your spouse, or your children attended college in 2000, you may be able to take advantage of the Hope Scholarship Credit or the Lifetime Learning Credit on your 2000 federal income taxes.

The Hope Scholarship Credit provides a tax credit for 100% of the first $1,000 and 50% of the second $1,000 of qualified tuition and expenses of each eligible student in your family who is enrolled at least half time in either the first or second year of post secondary education. This could be anybody.

For married taxpayers with adjusted gross income from $80,000 to $100,000, or single taxpayers with adjusted gross income from $40,000 to $50,000, the amount of the credit you will be able to take is reduced.

The credit is not available for married taxpayers with adjusted gross income above $100,000 or single taxpayers with adjusted gross income above $50,000.
More.

In 1913, the Sixteenth Amendment to the U.S. Constitution was ratified. It empowered Congress to tax “incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” The Internal Revenue Code is today embodied as Title 26 of the United States Code (26 U.S.C.) and is a lineal descendant of the income tax act passed in 1913, following ratification of the Sixteenth Amendment.

While some states do not have an income tax (Nevada), all residents and all citizens of the United States are subject to the federal income tax. Not everyone, however, must file a return. The requirements for filing are found in 26 U.S.C. § 6011. As the largest contributor, its purpose is to generate revenue for the federal budget. In 1985 for example, the government collected over $450 billion in income tax from a total of $742 billion in total internal revenue receipts. The funds collected are essential for the shaping and preservation of a free market economy.

Some terms are essential in understanding income tax law. “Gross income” can be generaly defined as “all income from whatever source derived;” a more complete definition is found in 26 U.S.C. § 61. Other important definitions like “taxable income” and “adjusted gross income” can also be found in Chapter I of Title 26. These terms are not fixed nor should anyone be confident in understanding their true meaning after a cursory reading because their imputed definitions change with time. The Supreme Court, through case law, demonstrates the changing meaning of taxable income.

Individuals are not the only ones required to file income tax returns. Corporations do as well. While they are subject to may of the same rules as are individual taxpayers, they are also covered by an intricate body of rules addressed to the peculiar problems of corporations.
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As of 2007, there are about 138 million taxpayers in the United States. The Treasury Department in 2006 reported, based on Internal Revenue Service (IRS) data, the share of federal income taxes paid by taxpayers of various income levels. The data shows the progressive tax structure of the U.S. federal income tax system on individuals that reduces the tax incidence of people with smaller incomes, as they shift the incidence disproportionately to those with higher incomes - the top 0.1% of taxpayers by income pay 17.4% of federal income taxes (earning 9.1% of the income), the top 1% with gross income of $328,049 or more pay 36.9% (earning 19%), the top 5% with gross income of $137,056 or more pay 57.1% (earning 33.4%), and the bottom 50% with gross income of $30,122 or less pay 3.3% (earning 13.4%). If the federal taxation rate is compared with the wealth distribution rate, the net wealth (not only income but also including real estate, cars, house, stocks, etc) distribution of the United States does almost coincide with the share of income tax - the top 1% pay 36.9% of federal tax (wealth 32.7%), the top 5% pay 57.1% (wealth 57.2%), top 10% pay 68% (wealth 69.8%), and the bottom 50% pay 3.3% (wealth 2.8%).

Other taxes in the United States with a less progressive structure or a regressive structure, and legal tax avoidance loopholes change the overall tax burden distribution. For example, the payroll tax system (FICA), a 12.4% Social Security tax on wages up to $97,500 and a 2.9% Medicare tax (a 15.3% total tax that is often split between employee and employer) is a regressive tax on income with no standard deduction or personal exemptions.

The Center on Budget and Policy Priorities states that three-fourths of U.S. taxpayers pay more in payroll taxes than they do in income taxes.  The Tax Foundation has stated that the burden of the corporate income tax (a 15-39% tax) falls on customers and workers of the corporations, who are often not rich.
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The federal government of the United States imposes a progressive tax on the taxable income of individuals, partnerships, companies, corporations, trusts, decedents’ estates, and certain bankruptcy estates. Some state and municipal governments also impose income taxes.

The first Federal income tax was imposed (under Article I, section 8, clause 1 of the U.S. Constitution) during the Civil War, then again in the 1890s, and again after the Sixteenth Amendment was ratified in 1913. Current income taxes are imposed under these constitutional provisions and various sections of Subtitle A of the Internal Revenue Code of 1986, as amended, including 26 U.S.C. § 1 (imposing income tax on the taxable income of individuals, estates and trusts) and 26 U.S.C. § 11 (imposing income tax on the taxable income of corporations).
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