Tips for Understanding the Tax Code

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Tips for Understanding the Tax Code

Many individuals believe that Internal Revenue Service (IRS) publications are the last authority on how to file your income taxes, but this is not the case. The Internal Revenue Code (IRC), generally known as the tax code, is where the actual regulations are published. Unfortunately, the IRC is not readily decipherable by the common individual, despite being thousands of pages lengthy—in 2014, the IRC was roughly 2,600 pages long.

To fill up the gaps, a profusion of secondary sources have been established to assist individuals in understanding the regulations governing their income taxes. These resources are designed to assist taxpayers understand not just how much tax they owe on their income, but also what tax credits and deductions they are eligible for.

Key Takeaways

  • The regulations regulating income taxation in the United States are quite complicated.
  • There are several resources available to assist people understand the regulations governing what they must pay and what tax credits and deductions they may be entitled for.
  • Internal Revenue Code (IRC), Internal Revenue Service (IRS) publications, phoning the IRS, consultation texts for tax professionals, hiring a tax professional, obtaining volunteer tax aid via VITA, and consulting texts for a consumer audience are some of these sources.

The Internal Revenue Code (IRC) vs. Treasury Regulations vs. Revenue Rulings

The IRC includes the official, legally enforceable tax laws established by the United States Congress. Taxpayers may examine the tax code online at the Office of the Law Revision Counsel’s website.

Treasury rules, often known as tax regulations, are the official interpretation of the tax law issued by the United States Treasury Department. These are published in Title 26 of the Code of Federal Regulations (26 CFR) and are also accessible online at the US Government Publishing Office’s website (GPO).

The benefit of studying these sources is that they are offered by the government, so taxpayers may be certain that the information included within them is accurate. The negative is that there is a lot of information, which might be difficult to comprehend. If you do not accurately comprehend a law or regulation and make a judgment about paying your income taxes based on your own misunderstanding, you will still be held responsibility for having the right facts.

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Revenue rulings are the IRS’s official interpretation of the law in certain instances. They may be simpler to understand for taxpayers, but they do not have the same legal weight as the IRC or Treasury rules.

Consult IRS Publications

There are IRS publications that give tax code interpretations. They are summarized in booklets, which are accessible in print or online at the IRS website.

The publications are easily accessible, free, and very brief. They are also simpler to comprehend than the tax code. However, some individuals find the papers to be rather obtuse.

Make a Phone Call to the IRS

The paper titled “IRS Publication 910: Guide to Free Tax Services” includes phone numbers for IRS departments as well as advice on how to contact them for assistance with your tax problems. Before calling one of these lines, the IRS suggests that you have the tax form, schedule, or notice to which your question pertains, as well as the facts about your specific case and the name of any IRS publication or other source of information that you used to get the answer.

While phoning the IRS may seem to be an ideal option, the IRS warns people that if they give incorrect information, you will still be held liable: “If we should make a mistake in answering your query, you are still responsible for paying the right tax.” Though an audit subsequently reveals that you paid less than you should have, even if it was based on advice from an IRS official, you will still be liable for the back taxes and interest.

However, you will not be penalized as a result of an IRS mistake. An IRS penalty is an extra sum charged by the IRS to persons who have underpaid their taxes. If you do call, make detailed notes on the representative’s name and title, as well as the time and date of your call.

Consult Texts for Tax Professionals

Publications aimed to Certified Public Accountants (CPAs), accountants, and tax lawyers provide some of the most thorough interpretations of the tax laws accessible. CCH and Tax Analysts are two of these publishers.

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These works, however, may be quite costly to acquire, and they are not designed for a lay readership. They are very technical, and if you aren’t a CPA, accountant, or tax attorney, the material in these professional sources may be difficult to understand.

Hire a Tax Professional

Most persons who have problems with their tax returns will seek the advice of a tax expert. Enrolled agents and Certified Public Accountants (CPAs) are trustworthy and reasonably priced sources of knowledge. Hiring a professional may save you time, even if it comes at an added cost. Visit the National Association of Enrolled Agents or the American Institute of Certified Public Accountants to discover a tax expert in your region.

One drawback of employing a professional is that if you do not thoroughly screen them by asking the correct questions, you may wind up with a professional who applies an extremely liberal, if not abusive, interpretation of the tax law to your financial circumstances. If you are audited, this might cost you a lot of money. However, even among the most honest and skilled tax specialists, various professionals may prepare your returns differently depending on their interpretations of the tax law.

The simplest approach to avoid these disparities is to hire a professional whose reading of the tax law corresponds to your own tax philosophy. Do you want to go for deductions aggressively and hope for the best, or do you prefer to err on the side of caution? An professional tax preparer will be able to describe their position so you can choose whether it aligns with your own. You should also inquire about the person’s expertise completing returns comparable to yours, particularly if your tax situation is uncommon.

Seek Volunteer Income Tax Assistance

The IRS provides a program that assists low-to-moderate-income people with their tax returns. This is known as Volunteer Income Tax Assistance (VITA).Volunteers specially trained by the IRS assist taxpayers in answering tax inquiries and preparing tax forms. This program has a particular focus on assisting low-income taxpayers in understanding what potential benefits the tax law may offer for persons in their unique position, such as how to claim the earned income tax credit (EITC) and the child tax credit.

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Qualified taxpayers may get help for free. Individuals are normally qualified depending on their income; for tax year 2022, if your income does not exceed $58,000, you may be eligible for VITA help. VITA tax preparers are volunteers, and they may not have professional-level tax expertise, thus they may not always deliver right advice. Furthermore, their expertise is often limited to assisting with very easy tax returns.

Consult Texts for a Consumer Audience

There are several consumer publications aimed at educating the typical taxpayer about income tax concerns and assisting them in taking advantage of all the credits and deductions to which they are entitled. Books published by Nolo, J. K. Lasser, and Ernst & Young are among the most reputable, up-to-date, and well known publications.

These books are reasonably priced (usually $25 or less) and widely available at local bookshops and online. While libraries may contain copies, they may not be the most up-to-date. These books are perhaps the simplest to grasp of all the trustworthy sources that seek to interpret the tax law for individual taxpayers.

However, keep in mind that the information included in these books is not legally binding.

The Bottom Line

The regulations regulating income taxation in the United States are quite complicated. It is advised that taxpayers seek the most credible source of information they can comprehend and afford in order to properly grasp what they are compelled to pay (and what they are not). Finally, if you are ever audited, there is always the possibility that you would be obliged to pay more than you anticipated. If this occurs, you should put some money aside in an emergency savings account.

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