February 16, 2005

Tax Man

Being tax season, do you ever feel like filing income tax returns is far more difficult than it ought to be? I mean, there are the different tax brackets, which is simple enough to understand, but that doesn't begin to cover it. There is Adjusted Gross Income, exemptions, deductions, credits, earned income, investment income, 1040, 1099, W-2, and countless other components to consider. There are so many exceptions and provisions and laws designed to encourage this or that, no wonder so many people turn to a professional each year to fill out the return. H&R Block's entire advertising theme has surrounded getting a bigger refund. You know they wouldn't say this if it were simple to fill out the return and get the proper refund, but instead, they know how difficult it can be as they cite the amount Americans overpaid the previous year.

It's somewhat sad that it has to be this way, that it has to be so complicated. The tax refund isn't some bonus that we earn each year, it's the amount we overpaid our taxes by. It's not a gift from the government for a year of hard work, it's money that the government has been earning interest on instead of you.

To get this money, you have to go through any number of forms, depending on your situation. The average person spends 13 hours filling out his tax return. Thirteen hours to get your own money back, unless of course you happen to owe the government money, in which case you get to spend 13 hours figuring out how big a check to mail to the IRS. Of course, this is just an average. I imagine most people don't quite put 13 hours into it, but still, it's a chore and a half.

I can understand the people who advocate a flat tax to simplify things. Just have a certain percentage taken out of each paycheck or dividend payment, and then there is no return to fill out, no April 15th deadline, and you keep all of your money instead of letting the government hang onto it until you fill out your tax return. For IRAs and other tax deductible retirement accounts, just put money into them straight out of the paycheck before the tax is deducted from the amount, just like employee health plan payments. I'm sure there are reasons not to do this, but I just don't know them. The simplicity is a big selling point, especially in that the current tax code is so complex that no one person truly understands it.

This is why I file my taxes online. The computer knows enough of the rules to suit my situation.

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