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What is Income Tax Law?

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  • Written By: Mary McMahon
  • Edited By: Nancy Fann-Im
  • Last Modified Date: 08 November 2018
  • Copyright Protected:
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    Conjecture Corporation
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Income tax law is a section of the law pertaining to taxes on income, including personal income as well as revenues earned by businesses. It is part of the tax code, which covers a variety of other taxes and usually provides for the establishment of a tax agency to enforce the code. Legislatures regularly update the tax code to change policies, reflecting changes in the financial climate. Individuals who owe taxes can consult tax agencies to get the most current information so they can file tax declarations appropriately.

Governments collect income taxes to fund activities ranging from national defense to providing health care services. Income tax law sets out the rules for tax collection. It defines the various kinds of income and how they should be treated for tax purposes, and establishes the rate of taxation. Some nations use a flat tax, charging the same percentage for everyone, while others use a graduated system, where the tax rate increases as people and companies earn more money.

One topic of interest within income tax law for many taxpayers is the use of deductions to reduce liability. Costs associated with doing business are deductions, as are expenses like caring for dependents. Deductions are often a complex topic, and they can fall into a number of different categories. By adding up the various forms of income and subtracting deductions, taxpayers can determine taxable income and find out how much they owe in taxes.

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Penalties for not paying taxes or committing fraud in association with tax filings are also set out in the income tax law. Taxpayers may be fined or imprisoned for not paying taxes, and the law empowers agencies to take actions against them. These actions can include placing liens on property to compel payment, seizing property and selling it to settle tax bills, and working out payment plans to assist taxpayers who have difficulty paying their taxes.

Accountants, tax attorneys, and professionals offering tax advice and assistance must be familiar with income tax law as well as other branches of the tax code. To practice, it is often necessary to take a test to demonstrate knowledge of the code. Periodic changes make it necessary to keep up, often through the use of professional publications that cover major changes in the code for the benefit of tax professionals. Failing to provide accurate information or filling out tax forms incorrectly on behalf of a client can result in legal penalties like losing a license to practice.

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