What is Tax Law?
Understanding taxes and when you may want to talk to a lawyer
on December 15, 2016
Updated on November 15, 2022
Taxes are unavoidable, so you must understand them. The good news? Taxpayers don’t need to know every facet of the Internal Revenue Code (IRC) to understand the basics of state and federal tax law.
The IRC is comprehensive tax legislation written by Congress. Federal, state, and local governments need revenue to function, and that revenue is paid to governments in the form of taxes. Every year, Americans report how much money they paid in taxes to the Internal Revenue Service (IRS). Lucky Americans get money back, called a “tax credit.”
Ordinarily, tax season is routine. But once in a while, you might have some complicated tax issues and want trusted advice. Or you may have gotten notice that the IRS is auditing you, and you don’t know what that means or what you should do. Maybe the county determined your house is worth more than it is, and you want to challenge their assessment. In these scenarios, you might find speaking with a tax lawyer helpful.
Tax Law – What You Need to Know
- Federal income tax policy is drafted by Congress and carried out by the Internal Revenue Service (IRS).
- Local governments also impose taxes on Americans.
- Federal, state and local taxes generate revenue for government services.
- This is a complicated area of law, and not paying your taxes can lead to sanctions and U.S. tax court.
An Overview of Tax Law
The money you pay in taxes is used to fund government services. This includes both federal and local taxes. State income taxes are usually used for roads, parks, and hospitals, while federal income taxes are used to pay for national defense and veterans’ social programs. Property taxes, meanwhile, are used by cities and counties to fund school districts and other local public services.
Income taxes are generally based on how much you earn in a year. Your income includes your salary, dividends, rents paid to you, lottery winnings, unemployment, and business earnings. Tipped workers are also subject to special rules about when they need to report their tips as income. The income taxing system is pay-as-you-go, which means you pay a little bit from each paycheck. If you have paid more than you owed at the end of the year, you will get the excess back in the form of a tax return. Alternatively, if you did not pay enough throughout the year, you will be responsible for covering the difference.
Taxes need to be filed with the IRS by April 15 each year to avoid penalties. If you incurred a penalty for filing your taxes after the deadline or for another reason, such as a dishonored check, you might qualify for penalty relief. You also have the option to challenge a notice of penalty.
Property taxes vary widely depending on where you live—because, as implied in the name, they are dependent on your property. Generally, a county assessor will determine your property value, and the local taxing authority sets the tax rate. Combining these two values will create the property tax amount you owe.
If you believe the county assessor valued your property incorrectly, you can dispute the assessment, though you only have a small window during which you can challenge the assessment. Generally, you will need to meet with the assessor and state your case for a lower value. You may be asked to attend other hearings and produce proof that the assessor was wrong, such as a sales contract showing you paid more than your house is worth or descriptions of similar properties with lower values.
If you received notice of a tax audit, that means that the IRS is looking more closely at your tax returns to ensure they are correct and free of fraud. There are four kinds of audits.
The IRS will occasionally select random returns and review them more closely. If your returns are being randomly audited, it doesn’t necessarily mean there was a red flag.
These types of audits are sometimes called mail audits. If the IRS has questions about your return or needs documentation to explain an out-of-the-ordinary deduction, you will get a letter. This type of audit is the least serious because you can respond with the requested information, and the problem is typically quickly resolved.
Office audits are more serious than correspondence audits. If you receive notice of an office audit, you will be required to go to a local IRS office and speak with an audit officer. Your audit notice will include information about the documentation you will need to provide, and you are entitled to have a lawyer with you.
These are the more severe audits, as they are typically broader than the others and are about more than some unusual deductions. The IRS will send an agent to your home or office during a field audit and review your entire return. You have the right to have an attorney present at this meeting.
After an audit, the IRS might change your return or leave it as is. If they leave it the way it is, or you agree with the changes, then the process is finished. If, however, you disagree with the changes, you have the right to appeal the determination. A lawyer will help you evaluate the IRS’ decision and understand the appeals process.
Common Questions to Ask an Attorney
Below are some common questions you might want to consider when meeting with an attorney.
- What is an IRS audit?
- Can I appeal an IRS determination?
- Can I deduct child support?
- Do I need to pay taxes on the money I inherited?
Finding the Right Tax Attorney for Your Needs
It is essential to approach the right type of attorney—someone who can help you through your entire case. To do so, you can follow this link to the Super Lawyers directory and use the search box to find a lawyer based on your legal issue or location.
To help you get started, you may want to consider looking for a lawyer specializing in tax law.
Should I Talk to a Lawyer?
The tax code is a complicated piece of legislation, and it can be hard to understand—especially if you have a unique situation that online filing programs don’t account for. If you have a question or have made a mistake and are being audited, it is vital to get advice from someone who understands the law. A tax lawyer will know how to answer your questions and solve your problems, and they will know about nuances in the law that can affect your situation.
A lawyer will further anticipate potential problems with your case and advise you on how to approach them. They may even be able to help you avoid potential problems altogether. Your lawyer will also keep track of deadlines and file all the paperwork with the necessary courts and agencies, giving you one less thing to worry about.