Legal Definitions - federal tax law

Federal tax law refers to the comprehensive body of legal rules that govern how the United States federal government imposes and collects taxes. It encompasses all statutes (laws passed by Congress), regulations (rules issued by government agencies like the Treasury Department and the Internal Revenue Service), decisions made by federal courts, and official guidance provided by the Internal Revenue Service (IRS).

Essentially, federal tax law dictates who pays federal taxes, what types of income or activities are taxed, how much is owed, and the procedures for reporting and paying those taxes. It covers a wide range of taxes, including income tax, corporate tax, estate tax, gift tax, and various excise taxes.

Here are some examples illustrating how federal tax law applies:

• Example 1: Filing an Individual Income Tax Return

  Imagine David, a software engineer, is preparing his annual federal income tax return. He needs to determine which portions of his salary, stock options, and investment gains are taxable. He also wants to know if he can claim deductions for his mortgage interest or contributions to his retirement account, and if he qualifies for any tax credits for his dependent children.

  This entire process is governed by federal tax law. The specific rules for what constitutes taxable income, the allowable deductions and credits, and the tax rates applied to different income levels are all established by federal statutes (like the Internal Revenue Code), detailed in IRS regulations, and clarified through IRS publications and forms. David's obligation to file and the calculations he performs are direct applications of federal tax law.

• Example 2: A Business Claiming Depreciation

  Consider "Innovate Manufacturing Inc.," a company that recently purchased new machinery for its factory. Their accountant advises them that they can deduct a portion of the cost of this machinery each year over several years, rather than all at once, to reduce their taxable income. This accounting method is known as depreciation.

  The ability to depreciate assets and the specific rules for how to calculate depreciation (e.g., the useful life of an asset, the allowable depreciation methods) are all defined by federal tax law. These provisions, found in federal statutes and IRS regulations, directly impact how much federal corporate income tax Innovate Manufacturing Inc. will owe, demonstrating how federal tax law applies to business operations and investments.

• Example 3: Administering an Estate After a Death

  When Eleanor's wealthy aunt passes away, Eleanor is named the executor of the estate. The estate includes significant assets like real estate, stocks, and valuable art. Eleanor must determine if the total value of these assets exceeds the federal estate tax exemption threshold and, if so, calculate and pay any federal estate tax owed before distributing the remaining inheritance to the beneficiaries.

  The existence of a federal estate tax, the threshold at which it applies, the methods for valuing assets, and the process for filing the estate tax return are all dictated by federal tax law. This includes specific statutes enacted by Congress and interpretive guidance from the IRS, ensuring the proper administration and collection of this particular federal tax on wealth transfer.