Current Tax System
• Why do we have an income tax? o To fund government programs
• What other types of taxes are individuals and/or professionals subject to? o Estate tax, gift tax, self-employment tax, social security, medicare, unemployment taxes, excise, sales & use, property
• How do tax laws affect decisions made by individuals? Businesses? o May determine how much an individual decides to gift or donate, how and where they choose to invest their money, whether they set up a trust or estate, do or do not purchase particular goods (eg might avoid cigarettes because of the excise tax, but may buy an electric vehicle for the tax benefits). May also be a factor in determining where they move or whether they take a job in a city/state with greater taxes. For businesses, it can help determine how they choose to structure (sole proprietor vs partnership vs LLC vs S Corp vs C Corp), whether they choose to pursue a particular product line (for example, if the government is offering a tax relief program for a particular product such as a crop or energy efficient technology), and where they decide to hire their workers.
• What are the ethical guidelines that will apply to individuals in tax practice? o Don’t take chances in the hope that the return will not be audited. Every action taken should be justifiable. Inform clients of risks involved in the position that is taken if it is not successful. Allowed to use client estimates if they are reasonable. Inform client if receipts or other docs are required. Make every effort to answer a question on a form. If error is found, advise client to fix it, but do not contact IRS about it.
• What are the economic, social, equity, and political considerations that justify various aspects of the tax law? o Economic: Can regulate the economy and encourage certain types of business o Social: Can encourage good behaviours or