Deciding whether or not to take tax class is a big problem for law students. We came to law school because we wanted to avoid math. We do not like numbers because they scare us. But everyone tells us to take tax (to be more specific, Federal Income Taxation) because it’s useful. Tax class will help you understand your own tax return (to some extent), they say. Plus, understanding the tax implications is essential for many types of law, particularly corporate law. Federal Income Taxation is a prerequisite to other tax classes like Corporate Taxation, Partnership Taxation and so on. But then again, tax is supposed to be hard and boring. And it involves numbers.
I decided to take tax and…I like it? The numbers aspect has not been too daunting and it’s a nice change from my other class because we get to do calculations and use a lot of examples. Tax class is also different from other classes in that it’s a code based class, meaning that the Internal Revenue Code is our bible (as our professor told us). What I like most about it is that I’ve learned that tax incentives and implications are a huge part of people’s decisions. I can definitely see how this would be useful in understanding the motivations behind people’s actions.
For example, the realization principle of federal income taxation is that people are only taxed on income once they have actually realized it, which gives people an incentive to hold on to property for as long as possible This means that if you own a property worth $1,000 and its value increases to $5,000, you have technically gained income of $4,000 because your land is worth more, but you haven’t realized this income because you haven’t sold the property and don’t really have this income at your disposal. Because you will only be taxed once you’ve sold the property, you have an incentive to hold on to the property for as long as possible to minimize your tax bill each year. You would probably sell the property in a year that your other income was lower than usual so that your taxable income would not be as high.
If that all sounds like gibberish, don’t worry. I think that the great thing about tax class is that there are examples for everything. Examples are particularly helpful for tax class because tax concepts are easier to illustrate with examples than concepts from other classes. Even the IRS Regulations always provide examples to illustrate how a regulation works. Maybe they’re not as bad as everyone claims?
