Scenario:

When thinking about taxes, people usually think of April 15 and the filing of their income tax returns. However, there are a multitude of other taxes that each person pays. Taxes are imposed by different municipalities that need funding. For you, it is important that you know how to differentiate between the fundamentals of taxes from these municipalities and how each affects you. Everyones tax experience is unique and dependent upon life experiences.

Why do people pay taxes? Oliver Wendell Holmes, Jr. answered this question when he said, Taxes are the price we pay for a civilized society (Spilker et al., 2020). What does this mean? To have a civilized society, citizens need to be protected. Helping the elderly and the less fortunate and educating the young is part of this mission. For example, federal taxes support the military to keep Americans safe, assist college students by providing student loans, pass regulations to help keep the air and water pure, and fund research for medical innovations to keep people healthy. State and local taxes pay for public schoolsboth K12 and collegesto educate children. Also, state taxes pay for police and firefighters to protect people, provide support to maintain roads and bridges, and fund public health care for many families.

Individuals paying their taxes need to know what tax they are paying and what benefits they will receive from paying the tax. Have you thought about all of the taxes that you pay? You probably are familiar with your state sales tax. If you own your own home, then you definitely are familiar with the annual property tax that you pay. What about the excise taxes on your phone, electric, and cable bills? Do you know that you pay federal and state taxes when you purchase a gallon of gas for your car? How much total tax do you pay annually?

Each type of tax is different and is calculated differently, paid at different times, and supports different agendas. It is imperative that tax professionals and individuals know tax laws. Learning to use tax laws effectively can make the difference between avoiding tax and committing tax evasion.

In the overall picture, taxes affect your personal finances, your investment choices, your business success, and even your politics. Learning about taxes is essential to your financial future.

Address the following questions in your response.

1. What are some of the notable characteristics of tax?
2. What is not considered a tax base used by government agencies to collect tax?
3. Federal income taxes include a variety of different tax bases. What tax base is not a federal tax?
4. Like federal income taxes, state and local taxes include a variety of different tax bases. What tax base is neither a state nor local tax?
5. Even though transfer taxes do not affect all individuals, individuals affected by a transfer tax can experience a high tax liability. What taxes are not considered a transfer tax?
6. Tangible personal property is taxed by state and local governments. What is an example of something that is not considered tangible personal property?
7. What is an example of something that excise tax is not levied on?
8. It is not unusual for people to make a mistake on their individual tax returns. When an individual taxpayer realizes that a mistake has been made, an amended tax return should be filed. Due to the statute of limitations in the Internal Revenue Code (IRC), what is the latest date that the amended return can be filed without causing a filing penalty?
9. Income-shifting transactions between family members have limitations. In the list below, what concept does not relate to family member transactions?
10. Tax rates can vary with different types of income. What are some examples of income that are taxed differently than the others?
11. Tax evasion is defined as a willful attempt to defraud the government. What are some examples of an attempt to commit fraud?
12. In many cases, there is a fine line between tax avoidance and tax evasion. In a situation where the distinction between the two is not clear, professional judgment must be used. Other tools can also be used. What tools can be used to distinguish between tax avoidance and tax evasion?