Guide to Laws for Taxpayers in the U.S. and California
By law you have certain rights with respect to paying your federal income taxes (to the IRS), and with respect to paying your state income taxes (to the California Franchise Tax Board or FTB)1IRS; and FTB rights and property taxes.
What You Should Know as a Federal Taxpayer
What happens if I don’t pay my taxes or I don’t report all my income?
You could be charged with a felony for tax evasion, with a fine of up to $100,000 and up to 5 years in prison!2IRC Sec 7201 So, maybe don’t do that.
Am I allowed to refuse to pay taxes in protest if I don’t like where the money is going or I don’t believe in being taxed?
Nope.3See United States v. Lee, 455 U.S. 252, 260 (1982); Wall v. United States, 756 F.2d 52 (8th Cir. 1985) Making “frivolous tax arguments” could subject you to a penalty of at least $5,000 and up to $25,000.4Internal Revenue Code Sec 6702 and 6673(a) Or you could even be charged with tax evasion (see above).
What happens if I can’t get my taxes in on time?
You have an automatic right to file for a 6 month extension. But if you owe the government money, you will be required to pay both late fees AND interest beginning the day after tax day.
What is an “audit”?
An audit is when the IRS (or FTB) asks for documentation and receipts to prove all of the claims, deductions, etc. you make on your tax returns. The government generally audits a certain percentage of taxpayers each year. So even though you don’t need to send this documentation with your tax return, you should keep it in your records in case you get audited.
Can the IRS audit me for past tax years?
Yes, usually up to the last 3 tax years.
Does my employer need to send me a tax form?
Yes, if you are an employee, your employer must generally send you a W-2 form by Jan 31 showing the amount they paid you and the tax withheld in the prior year.
Do I have any general rights in dealing with the IRS?
1. The right to be informed by the IRS about your tax obligations
2. The right to pay no more than the correct amount of tax
3. The right to challenge the IRS’s position and be heard (within IRS administration)
4. The right to appeal an IRS decision in an independent forum (in court)
5. The right to finality
6. The right to privacy & confidentiality
7. The right to retain representation (e.g. an attorney or accountant)
(from IRS “Taxpayer Bill of Rights“)
California taxpayer rights
You have similar rights as a California Taxpayer
Taxes for freelancers and small business
How do taxes work for a freelancer or small business?
If you are a freelancer or small business, you actually must pay taxes 4-5 times per year, not just once. Also, your clients/customers are generally not required to withhold any taxes from your compensation, as you are responsible for dealing with taxes. But your business clients may be required to send you a “1099” each year. See more at our Freelancer law page.
Is there a way for freelancers or small business owners to reduce self-employment taxes?
Actually, yes! See our Business Owner & Entrepreneur page.
Are there limits on how high property taxes can be?
Yes, in California the total property taxes a homeowner pays per year is limited to 1% of the “taxable value.” This is because voters passed Proposition 13 in 1978.
How is the taxable value of a house determined?
The taxable value of a property in California is the most recent purchase price of the property, plus about 2% increase per year (or the rate of inflation, whichever is lower). The property can only be “reassessed” for tax purposes when there is a change in ownership. Again, these rules are due to Prop 13.
Other Local Taxes
Are there limits on a local government’s ability to increase taxes?
Yes. For local governments in California to create or raise any “special tax” such as for parks or transportation, they must get approval of at least 2/3 of the voters. Once again, this is due to Prop 13 which voters passed in 1978.
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