In our “Money Mic” series, we hand over the podium to someone with a strong opinion on a financial topic. These are their views, not ours, but we welcome your responses.
Today, Gary Craig, CPA, explains why he believes the tax code should be changed, and how.
As a CPA with my own boutique tax firm, I know the ins and outs of the tax code and the features that make it confusing, expensive and time-consuming.
For a wide group of taxpayers, tax reporting is already inordinately complicated. If you have a full-time job, a little bit of investment interest and dividends, and own your home, I don’t think you should have to buy specialized tax software every year or hire someone to do your taxes. Yet most people with that kind of relatively simple tax situation find themselves shelling out $300-400 each year for an accountant, lest they mess up or face a penalty.
And let’s not even mention more complex tax situations.
Last month, the national taxpayer advocate Nina E. Olson reported to Congress that individuals and businesses spend about 6.1 billion hours a year complying with tax-filing requirements. That’s the workload of more than three million full-time workers, which is more than the number of workers on the federal government payroll.
Just before Olson’s report, Congress passed new tax laws that will make the tax code even more complicated.
Although I don’t present a comprehensive solution in this article, I do believe my proposals, based on experience with clients, could go a long way toward making taxes easier and less costly for many Americans.
To Give You a Sense of How Complex Our Tax Code Is …
The biggest example of the tax code’s complexity is the Alternative Minimum Tax, which was implemented in 1969 to ensure that the wealthy, who have access to fancy tax shelters, pay their fair share of taxes. But it doesn’t always accomplish that goal: In 2011, 42% of millionaires paid it, while 52% of those making between $200,000 and $500,000 did.
The AMT is very complex. In a nutshell, it’s an alternative way of calculating income that removes some of the deductions that normally lower your taxes. If your AMT taxable income is higher than your regular taxable income, you have to pay the AMT. Complicated, right?