Do your own taxes?
Mon, 04/14/2008
Today is the day after the IRS tax filing deadline.
If you're fortunate, you have completed that onerous task and have dropped your forms off at the Post Office and are breathing a sigh of relief.
If you're a tax accountant, however, it maybe be even better than that.
Many tax preparation businesses around the country celebrate the day after the deadline with parties, golf outings, festive restaurant lunches or just in catching up on the yard work.
Because it is not uncommon for tax accountants to work 14-hour days in the weeks before the April 15th cutoff, that abrupt cessation can even be a bit depressing.
It ain't easy handling the messy finances of millions of us who can hardly spell the word, "bookkeeping."
To begin, some say that the definition of an accountant is someone who solves a problem you didn't know you had in a way you don't understand.
It's important to remember that these people are highly trained. And if you do your own taxes, while you might feel good about saving the fee you would pay a professional, if you make a mistake, an audit will end up costing you time and will increase your stress levels in a big way.
Is this what you want?
Remember, an auditor is like a bad soldier who arrives after the battle and bayonets all the wounded. Why not let your accountant fight that off?
On the Fourth of July, 1776, when we declared our freedom from unfair British taxation, things seems bright and shiny.
But in 1787, the newly formed Congress started our own system of unfair taxation.
And if it seems like the IRS tax code gets more complicated every year, you're right.
In the early days of the income tax, Congress used its power to tax income in deciding whose income it was going to tax.
Deciding initially to tax only the wealthy, this strategy was short-lived because as late as 1913 only 85,000 people and less than one percent of voters fell into this category.
So for the next several decades, federal tax policy was primarily concerned with how much higher Congress could push the tax rates on rich people and corporations without destroying the emerging industrial economy.
By the time World War II came, the boys in Congress had democratized the income tax. Just about everybody became a taxpayer and the income tax was on its way to becoming the middle class thorn that spurred this ditty by author/poet Phyllis McGinley:
I'm a middle-bracket person
With a middle-bracket spouse
And we live together gaily
In a middle-bracket house.
We've a fair to middlin' family.
We take the middle view.
So we're manna sent from heaven
To Internal Revenue.
Then came the Tax Reform Act of 1986 where Congress completely dropped the pretense of evenhandedness and expanded an entirely separate income tax - called the alternative minimum tax (AMT) - that applies solely to people identified as not paying "enough" tax.
The victims are required to fill out two tax returns, one under the regular tax and one under the alternative tax.
And if they fail a complex mathematical inquisition, they are required to pay a penalty amount of extra tax.
Because of all of this, the United States Treasury's tax code is now eight times bigger and immeasurably more complex than in 1954.
One oft-cited example of this excessive complexity is the American Jobs Creation Act of 2004, which contained "an evenly balanced" $136 billion of tax cuts for some and $136 billion of tax increases for others. Why bother?
Even with all of this Orwellian, unnecessarily labyrinthine tax code, it's better here than it is in Russia.
As my father-in-law, The Famous Russian says, "In Russia, is simple....people have only what government gives them; in America the people have only what the government does not take away in tax."
So be nice to yourself this year and seek out a qualified Tax preparor, preferably one who is an "EA" (enrolled agent) who has passed the IRS background checks and their comprehensive quiz on federal tax law and who can offer some help with financial planning.
Once that professional takes on your burden, be nice to him or her too.
On April 16th, after they find that you actually have a bit of money coming back, you might offer to buy them a "tax cocktail" - two drinks and you withhold nothing.