Interesting Federal Income Tax Info

[Midpack]

Quote:

Originally Posted by marko My view: The really, really rich have always been able to dodge the tax man. They just have options that the rest of us don't have. "Residing" in tax favorable countries, getting the corporation to own that jet/house in France/trip to Rio/etc, keeping that income $10 under the $1MM mark and so on. Until recently, the US has been somwhat immune from the 'eat the rich' mentality but in Europe it has been a fruitless game for decades. (remember the old term: "tax exiles"?) Going after "the rich" is a waste of time and only makes for good political theater. Cut all the loopholes you want. Reform the tax code. Bring the tax rate to 50%! It won't matter. Is it fair? No. But, as it has always been, it will be you and I who pay the 'fair share'.

I think we're all going to have to actually pay more when all is said and done, but FWIW regarding "the rich." Too many folks focus on rates when they seem to have little to do with actual taxes paid (to your point somewhat). But I don't see how many fewer loopholes (with/out rate adjustments) couldn't improve collections and fairness, but I realize easier said than done...

[samclem]

Quote:

Originally Posted by Gone4Good Voters are bought off with loopholes too, they just don't call them that. They're called mortgage interest and charitable giving deductions or child-care credits and dependent exemptions.

And don't forget the non-taxation of compensation (namely--employer-paid health insurance). It's worth more (in reduced tax revenue) than either the mortgage interest deduction or charitable giving deductions.

[Independent]

Quote:

Originally Posted by Gone4Good Voters are bought off with loopholes too, they just don't call them that. They're called mortgage interest and charitable giving deductions or child-care credits and dependent exemptions. People love them and woe upon any politician who wants to take them away. They're not loopholes though. Loopholes are tax breaks that other people get.

This is mostly true. IMO, the solution is to get rid of them all, regardless of the name.

[scrabbler1]

Quote:

Originally Posted by Midpack I don't think your single son is a good example. I think of low income families with dependents and mortgages (often exceeds standard deduction). I've heard the 47% pay no FIT, so I had to look further. And note the number who pay no FIT has increased dramatically since the recent recession (I did not find a chart that went past 2007, but we know what the current numbers are). Misconceptions and Realities About Who Pays Taxes — Center on Budget and Policy Priorities

Thanks for posting this (along with the charts and important quoted text which were in the actual post). I always knew that most of the people in this growing group were low-income people with children as well as the elderly but did not have a breakdown.

I recall seeing my dad's tax returns recently (he is 81) and noticed that he often had no federal income tax liability. Between the low taxation of his SS benefits and the favorable treatment of some pension income, the only thing which really determined whether or not he had a federal IT bill was the presence of OOP medical bills (i.e. dental). And with such a low income threshhold, the 7.5% level he had to pierce was always very low, making nearly all of those bills deductible and often wiping out any remaining AGI. Furthermore, his state tax return treated his income sources even more favorably so he has not had any state income tax bills since he retired.

Can I ask you to please look up something else up? I read all the time about how big the tax code is with all of its pages. But for the many people who file one of the short forms (1040A, 1040EZ), the tax code is pretty much limited to the relatively small instruction bookelts. Over the years, I have not only filed each of the short forms myself but also for friends of mine and never found the tax code to be anywhere near big or unwieldy or a mess or containing thousands of pages as others claim. Do you know or can find out what percent of personal IT returns are made using each of those short forms?

[MichaelB]

Quote:

Originally Posted by scrabbler1 Can I ask you to please look up something else up? I read all the time about how big the tax code is with all of its pages. But for the many people who file one of the short forms (1040A, 1040EZ), the tax code is pretty much limited to the relatively small instruction bookelts. Over the years, I have not only filed each of the short forms myself but also for friends of mine and never found the tax code to be anywhere near big or unwieldy or a mess or containing thousands of pages as others claim. Do you know or can find out what percent of personal IT returns are made using each of those short forms?

Google is your friend. The first link that came up http://www.irs.gov/pub/irs-soi/12proj.pdf Look at figure A

[samclem]

Quote:

Originally Posted by scrabbler1 I read all the time about how big the tax code is with all of its pages. But for the many people who file one of the short forms (1040A, 1040EZ), the tax code is pretty much limited to the relatively small instruction bookelts. Over the years, I have not only filed each of the short forms myself but also for friends of mine and never found the tax code to be anywhere near big or unwieldy or a mess or containing thousands of pages as others claim.

You can bet the folks who file a 1040EZ are affected by our complex tax code. Among the ways:
-- When they suspect (rightly) they are getting ripped off because they can't take advantage of those special loopholes in those thousands of pages their faith in the fairness of the system is shaken and this affects them.
-- When they pay higher prices for everything because of higher overhead costs of companies to meet/exploit the complex tax code.
-- When the economy is stifled (reducing their wages and employment security) because investment capital is utilized less productively in response to government "favorites" in the tax code.
-- When their own FIT needs to be higher to pay for the giveaways to favored entities in the complex tax code.

[GrayHare]

hours deciphering complex tax system x millions of people = stunning amount of time spent producing nothing

I'd better sell my buffett before they tax that too.

[Gatordoc50]

Put the final touches on my taxes yesterday. Ended up with a 1400 AMT bill. Most likely from passive income of rental properties or capital gains from sale of a property. I don't understand the AMT. The taxes I paid were in line with others in my tax bracket. Anyway, I am closing on the sale of my practice on May 11 so they won't have GarorDoc to kick around any more!!

[W2R]

I finished my taxes months ago - - owed the IRS $370, and Louisiana owed me $151. I lost about three or four cents in interest by paying the IRS early this year.

I know, I know, that was not LBYM! The next thing you know, I'll start using dryer sheets.

[scrabbler1]

Quote:

Originally Posted by samclem You can bet the folks who file a 1040EZ are affected by our complex tax code. Among the ways: -- When they suspect (rightly) they are getting ripped off because they can't take advantage of those special loopholes in those thousands of pages their faith in the fairness of the system is shaken and this affects them. -- When they pay higher prices for everything because of higher overhead costs of companies to meet/exploit the complex tax code. -- When the economy is stifled (reducing their wages and employment security) because investment capital is utilized less productively in response to government "favorites" in the tax code. -- When their own FIT needs to be higher to pay for the giveaways to favored entities in the complex tax code.

This was not my point or part of my question. For those who file Form 1040A or 1040EZ (which, according to the link provided by MichaelB (thank you), about 30-33% of returns use one of those short forms, so most of the tax code does not matter when taking the time to prepare one's return on those short forms. It took me about 5 minutes to complete a return on 1040EZ and about 10 minutes on 1040A, hardly the onerous task requiring one to look up the 5,000 pages of the tax code but instead a few pages in one of the instruction booklets (especially 1040EZ).

[MichaelB]

Quote:

Originally Posted by scrabbler1 This was not my point or part of my question. For those who file Form 1040A or 1040EZ (which, according to the link provided by MichaelB (thank you), about 30-33% of returns use one of those short forms, so most of the tax code does not matter when taking the time to prepare one's return on those short forms. It took me about 5 minutes to complete a return on 1040EZ and about 10 minutes on 1040A, hardly the onerous task requiring one to look up the 5,000 pages of the tax code but instead a few pages in one of the instruction booklets (especially 1040EZ).

More recent data, courtesy of a forum friend. http://www.irs.gov/pub/irs-soi/10win...urnfilings.pdf

[Midpack]

Quote:

Originally Posted by scrabbler1 This was not my point or part of my question. For those who file Form 1040A or 1040EZ (which, according to the link provided by MichaelB (thank you), about 30-33% of returns use one of those short forms, so most of the tax code does not matter when taking the time to prepare one's return on those short forms. It took me about 5 minutes to complete a return on 1040EZ and about 10 minutes on 1040A, hardly the onerous task requiring one to look up the 5,000 pages of the tax code but instead a few pages in one of the instruction booklets (especially 1040EZ).

I suspect the number of filers using short forms is closer to 9%.

Almost three-quarters are filing online, themselves or through "practitioners," I don't think you can extrapolate as you have from the minority who still file paper forms. I doubt many "online filers" who would pay for tax software and then eFile would be short form folks, and I'd be really surprised if anyone who paid a professional tax "practitioner" would be anything but long form plus. The fact that 52% have to use a professional and another 20-39% use long form suggests to me way too many people are indeed confronted with the "tax code."

1040 Paper	20%
1040A & EZ	9%
Online filing	19%
Practitioner	52%
Other	LT 1%

[samclem]

Quote:

Originally Posted by scrabbler1 This was not my point or part of my question. For those who file Form 1040A or 1040EZ (which, according to the link provided by MichaelB (thank you), about 30-33% of returns use one of those short forms, so most of the tax code does not matter when taking the time to prepare one's return on those short forms. It took me about 5 minutes to complete a return on 1040EZ and about 10 minutes on 1040A, hardly the onerous task requiring one to look up the 5,000 pages of the tax code but instead a few pages in one of the instruction booklets (especially 1040EZ).

Yes, and the IRS allows people to use the 1040A or 1040EZ even when they'd save money by using the 1040. Folks who jump right to the 1040EZ will never know if they could have saved money (by filing as head of household, by itemizing deductions, etc). Just as almost >>everyone<< who files leaves money on the table--because we don't know/can't exploit the available breaks, because the interpretations are so subjective, etc.

We have one tax code and it affects everyone, whether we choose to read it or not. As individuals, every effort we take to streamline the process results in lost opportunities to pay lower taxes.

[eridanus]

Quote:

Originally Posted by Midpack The fact that 52% have to use a professional and another 20-39% use long form suggests to me way too many people are indeed confronted with the "tax code." 1040 Paper 20% 1040A & EZ 9% Online filing 19% Practitioner 52% Other LT 1%

50% of people are bad at math too.

[ChiliPepr]

Don't forget, when they talk of "tax code" they are talking about all the corporate code also. So, even if you use the short form, there are probably hundreds of pages of tax code telling the bank how to calculate and report the 12 cents of interest you received.

[ERD50]

Quote:

Originally Posted by ChiliPepr Don't forget, when they talk of "tax code" they are talking about all the corporate code also. So, even if you use the short form, there are probably hundreds of pages of tax code telling the bank how to calculate and report the 12 cents of interest you received.

True, but guess who also ends up paying for that cost of compliance?

-ERD50

[FinanceDude]

Quote:

Originally Posted by Midpack CBS Sunday Morning had a story on tax cheating this morning. They said only 85% of taxes due are paid and that collecting the other 15% would help reduce the deficit. So far so good. Then one of the experts concludes we should hire more IRS agents to collect the other 15%. How about we simplify the tax code so the average citizen can understand their taxes, and then use all the IRS agents who could be freed up from interpreting the current 5,300 pages, to spend time on more collections. Jeezzzzz...

It helps to remember this is the same IRS that FAILED an outside audit of their books, and they were sheepishly forced to admit there was at the time $65 BILLION dollars they were owed but could not collect because THEIR records were so bad. Typical govt solution, just throw more money at it, that always works..........

[rodi]

On one of the weekend news shows a pundit stated something I thought was interesting.

The tax code is really about spending and legislating social policy. It's easy to add changes that don't sunset or have to be reaffirmed, unlike budget bills.

For example the tax code gives breaks to couples with children who only have one income earner, vs dual income couples. So the policy statement could be that stay at home parents are good (from a tax perspective). And dual income parents are less than optimal. (The so called marriage penalty for dual income households.)

The tax code gives tax breaks for mortgage interest. So the policy is that home ownership and home debt is good. No breaks to renters or to people who pay off their mortgages. That is a social policy.

The tax code gives preferred rates to long term cap gains vs income. So the policy as codified in the tax code is that investment income is better than earned income.

I'm not trying to make a political point. Because I can argue both sides of each of these deductions. The point I'm making is that the tax code is a way of legally implementing social policy in a way that is harder to undo than a traditional law.

As mentioned by others - tax codes that had sunsets in them - intended to be temporary - are now considered to be permanent and a tax increase if they are allowed to expire as designed. The "Bush" taxcuts, the social security reduced tax of the last 2 years, etc.

I thought it was an interesting way of looking at out tax code. It's not about revenue, it's about social policy.

[haha]

Quote:

Originally Posted by rodi I thought it was an interesting way of looking at out tax code. It's not about revenue, it's about social policy.

Government is always mainly about social policy. The power to give to some while taking from others is a great power. You can only give so much of your own money to a pressure group, but when you can direct taxpayer money to this group, take it away from that group-this is lawmakers' and bureaucrats' hog-heaven.
Ha

[scrabbler1]

Quote:

Originally Posted by samclem Yes, and the IRS allows people to use the 1040A or 1040EZ even when they'd save money by using the 1040. Folks who jump right to the 1040EZ will never know if they could have saved money (by filing as head of household, by itemizing deductions, etc). Just as almost >>everyone<< who files leaves money on the table--because we don't know/can't exploit the available breaks, because the interpretations are so subjective, etc. We have one tax code and it affects everyone, whether we choose to read it or not. As individuals, every effort we take to streamline the process results in lost opportunities to pay lower taxes.

You can't prove that people who use 1040EZ or 1040A are leaving money on the table any more than I can prove that those who use 1040EZ or 1040A are not leaving money on the table. There are pages in the instruction booklets which help guide filers to use the appropriate form although that is not foolproof.