Tax Laws You Must Know

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All of us are required to pay taxes. It’s not just that the law says we have to pay it. But, it’s because paying taxes means we foster development and growth in our nation’s economy. Taxes are also the government’s sustainable source of funds for its programs and investments to further bolster the nation.

The United States in particular is considered to have one of the strongest economies in the world mainly because of its strict tax laws.

Aside from that, Americans are keen on paying their taxes regularly since they know where their money goes and how it will benefit them. Americans enjoy free education & health. They also benefit from infrastructure & security, to name a few from the taxes they’re paying.

As we all know, there are different types of taxes from personal income, corporate, estate, luxury, excise, sin, property, and others.

Taxes are managed by the laws imposed by the federal government. It’s basically the rules and the procedures that govern our taxes from federal, state, and down to local governments. Tax laws differ from each other from state to state.

These tax laws are authored by the US Congress along with state legislatures. These laws are subject to amendments geared towards improving the law. If you’re planning to read all tax laws, you need to read pages and pages of it.

Don’t worry though, if you’re curious about the different tax laws in the US, we’ve summarized & simplified it for you! So, let’s check out how these tax laws that govern our hard-earned money.

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Internal Revenue Code (IRC)

The basis of the United States’ tax law is the Internal Revenue Code (IRC) Title 26 of the U.S Code. It’s formally known as the IRC of 1986. It is the domestic part of the country’s federal statutory tax law. This law covers the income, excise, gift, and estate taxes under its 11 subtitles.

The IRC also sets the administrative and procedural guidelines that the Internal Revenue Service (IRS) and the taxpayers should follow.

Here is the complete information about the IRC.

Federal Tax Law

The Federal tax law has more authority and coverage than the IRC. The Department of Treasury issued several regulations to fully interpret every single code section. This is to provide a more precise explanation, and examples with the authority from the U.S Congress. The Federal tax law has a substantial authority wherein the IRS has to follow their written regulations and guidelines when enforcing it.

Commonly, Congress only writes down brief general principles on the tax laws they pass. Thus, the Department of Treasury added corresponding regulations to further explain a particular code section.

For more information on the federal tax law, check it here.

State and Local Tax Laws

Since each state has its own set of laws aside from the universal federal law, it’s not surprising they have varying tax laws. Not all states impose an income tax; however, they assess other forms of taxes to compensate for the absence of an income tax. They can impose higher taxes on inheritance, property, or sales taxes to name a few. State governments often have distinct and unique federal laws. As we all know, each state is sovereign and has the authority to create essential laws. Each state is unique from one another, thus, their tax laws often are different.

Thus, state governments have different tax codes, but overall have the same mandate as the IRC under the federal government. State and local tax laws can be made and passed on a city or a county level.

Here’s a more detailed explanation of the state and local tax laws.

Changes in Tax Laws

Similar to numerous laws, tax laws can be amended. It’s best remembered that the federal government recently amended several tax laws by incentivizing business and income taxes to help stimulate the economy. States, counties, and cities were also required to follow suit by adjusting their rates on property taxes yearly for different factors.

Here are some of the most recent tax law amendments for your reference.

States With the Highest & Lowest Tax Rates

Since each state has varying tax rates, it’s not surprising that some states have cheaper tax rates while others are expensive. Currently, the state of California holds the highest income tax rate at 13.3% while Pennsylvania holds the cheapest income tax rate at 3.07%.

However, several states in Wyoming, Washington, Texas, South Dakota, Nevada, Florida, and Alaska don’t have income taxes.

The highest property tax in the country is Passaic County in New Jersey with 8.79% while Vernon Parish has the lowest with 0.25%.

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Conclusion

Learning even the basics about the taxes we pay is essential. We’re glad you’ve taken time to learn a thing or two about our nation’s tax laws.

At Bahama Bay Club, we make sure we file our taxes regularly according to federal and state law. If you want to know more about how much of your payment goes to taxes, call us today.