Federal Income Tax

Federal Income Tax

Federal income tax is in integral part of the United States’ tax system, serving as the primary revenue source for funding various government initiatives and programs. As a backbone of America’s financial infrastructure, understanding how the federal income tax system works is crucial for every American taxpayer.

Understanding Federal Income Tax

Federal income tax is a progressive tax system imposed by the United States government on the income earned by individuals and entities. It requires taxpayers to report their earnings and pay taxes on various types of income, such as wages, self-employment income, rental income, dividends, and capital gains. The Internal Revenue Service (IRS) is responsible for administering and enforcing tax laws.

Calculating federal income tax can be complex due to the numerous factors involved, such as filing status, taxable income, and applicable tax rates. The tax code is continually evolving, with changes brought my legislative actions and economic considerations. 

The federal income tax system is based on a tiered structure known as tax brackets. Taxpayers fall into different income ranges, and each range corresponds to a specific tax rate. As your income increases, you may move into a higher tax bracket, which means you will pay a higher percentage of your income in taxes for that portion of your income.

Every year, taxpayers are required to file their federal income tax returns by the deadline, which is usually on or around April 15. Filing can be done electronically or by mail, and it involves reporting all sources of income and deducting eligible expenses and credits to determine the final tax liability.

Individuals and businesses can claim deductions and credits to reduce their taxable income, and consequently, their tax liability. Common deductions include mortgage interest, state and local taxes paid, charitable contributions, and medical expenses subject to certain restrictions. Meanwhile, tax credits directly reduce the amount of taxes owed and can be claimed for various purposes, such as educational expenses, child and dependent care, and renewable energy investments, subject to certain restrictions. In some cases, when taxes have been prepaid or withheld, some taxpayers may be entitled to a federal income tax refund while others may have additional tax liability.

State Income Tax

The federal government is not the only entity that imposes an income tax on individuals and entities. Many states impose their own income tax apart from Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming who do not have a personal income tax though these states have other forms of taxations.

In Pennsylvania, personal income is levied at 3.07% on the taxable income, based on federal taxable income, of residents and non-residents who earn income in the state. The tax applies to various forms of income, such as wages, salaries, self-employment income, rental income, interest, dividends, and capital gains. It is a flat-rate tax, meaning that all taxpayers pay the same percentage of their taxable income regardless of their income level. Pennsylvania offers certain deductions and credits to reduce taxpayer’s tax liabilities.

How a Federal Income Tax Lawyer Can Help

One of the primary roles of a tax lawyer is to help clients develop effective tax strategies that minimize their tax burden while adhering to the law. They stay up to date with current tax regulations, identify applicable deductions and credits, and structure financial affairs to maximize tax benefits.

Furthermore, in the event of a tax audit or if the IRS challenges a tax return, a tax lawyer can be an essential advocate for taxpayers. Tax lawyers can represent clients during the audits and negotiate with tax authorities on their behalf, aiming to reach a fair and favorable resolution. This representation is particularly valuable when disputes involve complex financial matters or potential legal issues.

And, if a tax dispute reaches the federal court system, a federal tax lawyer can provide legal representation to protect their clients’ interests.  This is especially crucial for cases where substantial amounts of money are at stake, as tax court cases often require in-depth knowledge of tax law and courtroom experience and may put the burden of proof on the taxpayer. 

Finally, tax lawyers are well versed in business tax matters and estate and gift-tax planning, helping their clients structure their assets and businesses to minimize their tax liability.

If you are facing a tax audit from the IRS or state authorities or are just looking for tax advice in general, the team at Premier Legal Services, PLLC are here to help you navigate the complexities of tax law.  Contact them at (267) 245-0649 or info@1lawyer.com for a consultation.