Tax Law And Accounting

Tax Law and Accounting

Every person, organization, company, or non-profit is subject to the income tax. Income tax refers to those taxes imposed on any money earned during a calendar year. The government taxes our income so it can have enough money to pay for the things we all need. In order to comply with tax laws and regulations, a good understanding of the Federal tax law, its sources and purposes, and the relation with the accounting profession must be achieved.

Congress and the President of the United States are responsible for writing and approving the tax laws. They are also responsible for the federal budget. The budget is how much the government plans to spend on various programs and services. The Internal Revenue Service (IRS) is responsible for enforcing the tax law, for collecting taxes, for processing tax returns, for issuing tax refunds, and for turning over the money collected to the US Treasury. Then, the Treasury is responsible for paying various government expenses.

The income tax was first developed during the Civil War when the first income tax was imposed. The purpose of the tax was to acquire money to pay for the war debt. After the war, the income tax was declared unconstitutional by the Supreme Court in 1895 because it was not assigned among the states in conformity with the Constitution. With the passage of the Sixteenth Amendment to the Constitution in 1913, Congress was authorized to impose an income tax without apportionment. Therefore, it resulted in a revenue law that taxed both individual and corporate incomes. "In 1918, during World War I, the top rate of the income tax rose to 77 percent to help finance the war effort. It dropped sharply in the post-war years, down to 24 percent in 1929, and rose again during the Depression. During World War II, Congress introduced payroll withholding and quarterly tax payments." ("Brief History of IRS", para. 3). In October 1986, the President signed into law the Tax Reform Act of 1986. This was perhaps the most massive reform of the U.S. tax system since the beginning of the income tax. With this act, Congress promised individuals and businesses lower tax rates on their income, provided they gave up or reduced many popular income tax deductions. ("An Outline of the American Economy", para. 6)

The Taxpayer Relief Act of 1997 made additional changes to the tax code providing a modest tax cut.