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Tax Strategy Essay

2814 words - 11 pages

Introduction Americans are paying more in taxes than ever before. No matter where we turn, we are confronted by taxes, from the first time we buy something as a youngster to even after we die. Many thousands of pages have been written regarding taxes, tax laws and how to reduce income tax liability. The bottom line is that if you, the Corporation, or partnership is successful and making money, income taxes will have to be paid. However, having knowledge of the tax laws and how they can be used in your favor can drastically reduce the amount of taxes you pay. The key is to stay informed about the laws and knowing tax strategies and how to apply these strategies. First, it's important to realize that just because something is published, it is not necessarily valid or appropriate for your situation. There are general tax strategies that could apply to any taxpayer, as well as strategies designed for specialized groups of taxpayers, including self-employed people, real estate investors, business owners, and executives. Each person's situation is different, and individuals should work with their tax advisers to identify strategies that work best for them.This paper focuses on some of the tax strategies that can be used for cutting individual income tax bills based on the new tax laws. It provides a brief summary of the new tax laws and major provisions for considering how to use them for planning the next year's tax strategy.An Overview of the new Tax Laws Rule of the Game--- Tax Laws Congress writes the tax laws, which become part of the Internal Revenue Code (IRC) or tax code for short. The tax code is amended every year. Congress has given the IRS the power to interpret the tax code through a series of IRS Regulations. These regulations are expanded versions of some, but not all, tax code provisions with illustrations of how the law is applied in different situations. The IRS also publishes Revenue Procedures and Letter Rulings, which provide guidance in the same manner as the regulations. Keep in mind, not every provision of the tax code has a corresponding regulation.The IRS is not the final word on interpreting the tax code." The federal court system, composed of the U.S Tax Court, federal District Courts, the U.S. Court Federal of Claims and U.S. Bankruptcy Courts, all have the power to decide, on a case-by-case basis, how Congress intended the tax laws to be applied" (Nolo Press, Online ). Any taxpayer or the IRS, unhappy with a court's tax decision, can appeal to a Circuit Court of Appeals, and in rare cases to the U.S Supreme Court.The Current Scene--- New Tax Laws Congress has passed about 11 major tax laws between 1975 and 1993 to bring the federal budget into balance. The balanced budget was accomplished through significant tax increases in the 1980s, and there were five major revisions, including the landmark overhaul Tax Reform Act of 1986. After nearly two decades of essentially constant change to the tax system, on August 5, 1997,...

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