myths

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MYTH NUMBER 1: THE 16th AMENDMENT TO THE U.S. CONSTITUTION IS INVALID AND YOU DON’T HAVE TO PAY TAXES.

This is a myth perpetuated by ultra right wing people commonly known as tax protesters. Some of their arguments include the idea that certain states didn’t ratify the amendment correctly or that the 16th Amendment conflicts with the 13th Amendment on involuntary servitude. Their actions and interpretations have been rejected time and time again and resulted in some going to prison for the positions they take.

The U.S. Constitution simply lays the foundation and provides the power for Congress to levy taxes. “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

The rest is history as they say. Congress enacts tax legislation which everyone knows to be the Internal Revenue Code. The Internal Revenue Service is the agency of government responsible for making regulations to interpret some of the legal language of the Code and to enforce the collection of tax. Ironically, most people equate the IRS with the enactment of tax laws which is not quite accurate. If people want tax laws to change it is the Congress that must do so. This having been said, however, the IRS does tend to coordinate with tax professionals and the public in how certain Code sections may be interpreted and enforced and of course the Courts are the ultimate deciders of whether a law will be upheld or not.

MYTH NUMBER 2: TAXES ARE VOLUNTARY

Similar to the constitutional argument many believe that filing tax returns are voluntary. This is a myth. In fact, filing a tax return is required, provided you meet the income requirements or other rules. What is voluntary is the information that you choose to place on the tax return. Since the information you choose to place on the tax return is voluntary, one of the functions of the IRS is to exam returns to make sure that compliance is being done properly. This of course is the IRS exam. The rules and regulations are established defining what a taxpayer has to provide to show that what is in the tax return has been properly reported. Take note that your taxes pay people whose job it is to exam your return, take up your time, cost you more money all for the purpose of getting more money out of you so they can keep doing that job. And since your money is paying their salaries they have no incentive to be quick about it. When the government wants to raise your taxes this is an idea that should be kept in mind.

MYTH NUMBER 3: A BIG REFUND IS A GOOD THING

People work so hard to keep their money, to invest it and to make money that this myth always surprises me. A big refund means that you paid too much in taxes to the government and they are using it and keeping it until you file your tax return asking for the money back. They just don’t sit back and say Oh Look, Mary Jane paid us too much, let’s make sure she gets her money back. To make matters worse, all the money you pay to them doesn’t earn interest or grow in any way. A good tax planner will help you to make sure that what you owe is only what you owe, no more no less. Keep more of your hard earned money in your pocket.

MYTH NUMBER 4: I HAVE A LEGAL OBLIGATION TO PAY TAXES

This is a monumental myth. There are two concepts at work here. Tax avoidance and Tax evasion. Tax avoidance is using every legal means so you don’t have to pay tax. Tax evasion is when you do things that are illegal not to pay taxes. In the words of the famous Justice Learned Hand who was a Chief Justice of the Supreme Court, “Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.” These words ring true today that taxpayers can do everything they want to make sure there taxes are low or none. For people who have investments as was pointed out in the Romney Obama debates, Mitt Romney took advantage of the tax laws and pay only 15% income tax on dividends and capital gains AS HE WAS LEGALLY ALLOWED TO DO. If you want to give your money to charity, you will receive tax deductions and not have to pay taxes. The choice is the individual using the law as it is written to his or her best advantage.

MYTH NUMBER 5: I DON’T HAVE TO PAY THE TAX IF MY TAX PREPARER MAKES A MISTAKE.

This is a myth. Each taxpayer is fully responsible for paying the taxes they owe. Each taxpayer should review their return with their tax preparer and make sure that what is being reflected on the tax return is supportable because if you get caught up in an IRS exam and you can’t support the numbers on the return, you most likely will end up paying more tax. Sometimes there may be penalties and interest for the incorrect reporting on the tax return and you might have the ability to collect penalties and interest from the tax preparer, however, in most cases the amounts make it difficult because the only recourse might be a lawsuit.

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