The field of accounting is closely linked with taxation. Whether you work for a national tax preparation chain or for one of the “Big Four” accounting firms, taxation law is one of the subjects your employer will expect you to know thoroughly. Understanding taxation law starts with knowing what the tax code is and what it entails.
The Definition and Purpose of Tax Codes
A tax code is the collection of written laws and regulations regarding taxation that individuals and businesses are required to follow. Federal and state governments create tax codes to have a written record dictating how much of an individual or company’s wealth or income they are required to turn over to the government, as well as if taxpayers are eligible for any deduction or credit that will decrease their tax burden.
The Tax Code in the United States
In the United States of America, the federal tax code is called the Internal Revenue Code. The collective documents take up thousands of pages (by some estimates, tens of thousands of pages). It contains four million words, Forbes reported. Within the Internal Revenue Code are tax rate data and information about eligibility for credits, deductions and exemptions. Frequent amendments alter the tax code without revising it entirely. For example, Congress has made more than 5,000 amendments since 2001, Slate reported. Given its immense size and the massive number of amendments over the years, the tax code is incredibly complicated – so complicated that the Internal Revenue Service (IRS), the government agency responsible for collecting federal taxes and enforcing tax laws, has called this complexity “the most serious problem facing taxpayers.” Because the tax code itself is so complex, most taxpayers rely on “secondary documents” – publications that help translate tax rules and regulations into simpler, more accessible language.
To develop a thorough knowledge of the tax code, accounting students may take several courses focusing on different facets of taxation. They study personal and corporate taxation at introductory through advanced levels. They may take separate classes devoted to federal taxation, international taxation and state and local taxation. Aspiring accountants must understand the practices and procedures at play in tax laws and regulations as well as how to prepare tax documents. Like the tax code, college courses in taxation go beyond income tax to include taxes on trust funds, estates, gifts and transfers. Because the tax code is constantly changing, accounting students may need to study current developments in the field of taxation, too. The subject of taxation is so important that some schools offer specific degree programs in taxation, like a Master of Accountancy in Taxation, where accounting students can further develop their knowledge and skills beyond the undergraduate level.
Modern accountants play a variety of roles for their business and individual clients, including helping them plan to reach their financial goals. However, tax return preparation and understanding tax regulations remain important job duties for accountants, not to mention major subjects of study for accounting students.