Product

The goal of studying taxation is to be able to recognize issues (or transactions) that have tax implications and, when possible,
try to understand the justification for them. Suppose, for example, that you come upon a situation that involves a discharge
of indebtedness. If you know that forgiveness of debt results in income but that there are exceptions to this rule, you’re doing well. The issue has been identified, and the outcome (i.e., when an exception applies) can be resolved
through research. A variety of commercial and free tools and resources are available to help you research tax issues and reach
a conclusion.

You may have heard that tax is a difficult subject because of the many rules, exceptions, and definitions, as well as frequent
changes to tax rules. You may even have heard that taxation is boring. Taxation is a challenging topic, but it is certainly
not boring. Taxation is an important and exciting topic due to constant change by the three branches of our Federal government
(as well as changes by state and local governments), the significance of taxes to the bottom line of a company and an individual’s
finances, and the impact on our economy and society.

Tax professionals tend to find enjoyment in their chosen field due to the intellectual challenge of dealing with tax rules
for compliance and planning purposes, the opportunity to interact with colleagues or clients to help them understand the effect
of taxes, and the knowledge that their work affects the financial well-being of individuals and businesses.

In studying taxation, focus on understanding the rules and the why(s) behind them (rather than only memorizing the many rules
and terms). The rules become more meaningful by thinking about why they exist for the particular type of tax. For example,
why does the Federal income tax allow for a casualty loss deduction in certain situations? Why is tax depreciation different
from that used for financial reporting? Also consider how the rules apply to different types of taxpayers (like employees,
sole proprietors, corporations, investors, children, and retirees). Also think about how the rules apply to taxpayers of varying
income levels and sophistication of transactions (a homeowner versus someone who owns assets in several countries). Aiming
for understanding rather than memorization will make your journey into the world of taxation interesting and meaningful and
will prepare you well for dealing with taxation in your accounting or finance career.

For tax professionals, the study of taxation is an ongoing and intriguing process. When Congress changes the tax law, tax
professionals must review the new rules in order to understand how they affect clients or their employer. In addition, decisions
rendered by the courts in tax disputes and guidance issued by the Treasury Department and the Internal Revenue Service must
be understood to ensure correct compliance with the law as well as identification of updated and proper tax planning ideas.

Concept Summary 1.1 illustrates the various ways that individuals deal with, and are affected by, taxes.