Income Tax Law Fundamentals - Introduction

Types of Authority
Tax planning should focus beyond tax savings and pursue goals related to wealth maximization, client objectives, suitable risk, suitable investments and effective use of time horizons.


Understanding Tax Avoidance vs. Tax Evasion:
Tax Evasion The reduction of taxes through illegal means (fraud, failure to report, etc.)
Tax Avoidance – The act of working within the legal limits of the law to minimize tax liability through the use of various financial and tax planning tools.

Understanding Tax-Free, Taxable and Tax-Deferred:
Tax-Free Income that never incurs a tax liability (e.g., tax-free municipals)
Taxable Income that is subject to federal income tax (e.g., interest from corporate bonds)
Tax-Deferred – Income that is sheltered from income tax until a later date (e.g., securities purchased in a traditional IRA account, annuity or 401k plan)

Primary Authority


Related Articles
  1. Taxes

    Tax Haven Vs. Tax Shelters: Is There a Difference?

    Learn about the difference between tax havens and tax shelters, and how both are used to reduce tax liability or avoid paying taxes altogether.
  2. Taxes

    3 Federal Income Tax Facts You Didn't Know

    Learn about three federal income tax facts that most Americans may not know from one of the most trusted financial resources on the Web.
  3. Professionals

    Income Tax Terminology

    CFA Level 1 - Income Tax Terminology. Learn the difference between financial and taxable income. Covers basic tax terminology, including types of differences.
  4. Taxes

    What's IRS Form 1040 For?

    Most U.S. taxpayers will be familiar with the 1040. By the end of filling it out, you'll know how much tax you owe, or what your refund is.
  5. Taxes

    Understanding Income Tax

    Income tax is a levy many governments place on revenue of entities within their jurisdiction.
  6. Professionals

    Types Of Taxes

    These taxes are unavoidable for corporations.
  7. Professionals

    Tax Accounting

    Tax Accounting
  8. Investing

    Deferred Tax Liability

    Deferred tax liability is a tax that has been assessed or is due for the current period, but has not yet been paid. The deferral arises because of timing differences between the accrual of the ...
  9. Taxes

    What All the Candidates’ Tax Plans Are Missing

    The presidential candidates have starkly different tax-reform proposals – but none of them gets to the real problem of America's tax system.
  10. Taxes

    Strategies for Protecting Your Income from Taxes

    Taxes are difficult to avoid, but there are many strategies you can find to help ward them off a bit. Here are a handful of ways to protect your income.
RELATED TERMS
  1. Tax Shelter

    A legal method of minimizing or decreasing an investor's taxable ...
  2. Effective Tax Rate

    The average rate at which an individual or corporation is taxed. ...
  3. Tax Break

    A tax break is a savings on a taxpayer's liability. A tax break ...
  4. Tax Rate

    The percentage at which an individual or corporation is taxed. ...
  5. Income Tax

    A tax that governments impose on financial income generated by ...
  6. Deferred Income Tax

    A liability recorded on the balance sheet that results from income ...
RELATED FAQS
  1. How can I lower my effective tax rate without lowering my income?

    Discover how to reduce your effective tax rate without losing income by maximizing adjustments and deductions, earning tax-free ... Read Answer >>
  2. How does the marginal tax rate system work?

    The marginal tax rate is the rate of tax that income earners incur on each additional dollar of income. As the marginal tax ... Read Answer >>
  3. What is the difference between a state income tax and a federal income tax?

    Learn the difference between state income tax and federal income tax based on tax rates, deductions, tax credits and taxable ... Read Answer >>
  4. What are some ways to minimize tax liability?

    Learn what tax strategies are available to individuals and business owners that may allow for a reduction in tax liability ... Read Answer >>
  5. Do tax liabilities appear in the financial statements?

    Find out how taxes are shown on the balance sheet, the income statement and the cash flow statement, and why taxes are an ... Read Answer >>
  6. What is the justification for allowing deferred tax liabilities?

    Understand the justification for allowing deferred tax liabilities. Learn the reasoning behind why a company would want to ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center