I Despise the USA Tax System SO Much

[clobber]

I usually support the theory that you should not complain about paying a lot of tax. It usually means you make a lot of money. What I REALLY hate is how we get there.

Macro gripes:

1) We do not teach people (in school or otherwise) how to do their taxes.
2) It is nearly impossible to calculate your own taxes and be confident you got it right. I do it every year and I'm never that confident. Likewise, most of my colleagues complain that their tax pros often get it wrong.
3) It is nearly impossible to anticipate how certain actions will affect your taxes. You can anticipate the things you know about (like your tax bracket), but not the things you dont (e.g., AMT, NIIT)
4) It is nearly impossible to plan for future taxes unless your income is incredibly stable/predictable. If you mutual fund capital gains distributions vary, or work bonus varies, etc - it is not possible.
5) Many things are tied to an AGI or MAGI which makes no sense. Why should my ability to get a certain credit, rest on the decision to contribute to tIRA or Roth?
6) Tax cliffs. They MIGHT be OK if you could predict everything to the dollar, but you cant. So many ER people doing ROTH conversions, I have no idea how you do that calculation so accurately. My AGI varies.
7) We have a system that encourages complexity. Companies want to keep it complex so you will pay them.

Cases in point:

1) AMT is just the stupidest thing. And the fact that in mostly affects the well off, but not the rich/uber rich is annoying.
2) Net Investment Income Tax. I suspect a fair amount more people will be hit with this in 2020. To repeat myself, I'm not all that opposed to the progressive tax system, but stop lobbing surprises. Should I have known? I dunno.
3) Some people were counting on things like AOTC credits. But - if this happens to be the year you unload some equities, then your AGI will be too high.
4) Repayments are a joke. You can literally be overpaid by your employer in one year, pay it back in the next year, and lose the difference in tax.
5) The concept of allowances (w4) was terrible and is now a joke. Yes, they are gone from the new w-4 but they are still built into the withholding tables and they are not gone from the W-4P

Specifics:

I decided to take some money out of the market. Happy I got gains, but believe it has thrown me into AMT and NIIT. Not only that, but it probably disqualified me for AOTC or other credits. I've been able to figure out NIIT, but not AMT (which I have had to pay before). Turbo Tax is telling me how much I will have to pay, but not why (what-if worksheet)

What I would do differently:

Make better use of the Turbo Tax what-if worksheet before taking actions. However, that is very difficult if you don't know that years numbers.

 

[HI Bill]

The tax code is extremely complex, and it's a well-known concept that even the IRS can't consistently interpret it. I like the way they do it in Japan: taxes are withheld from each paycheck, and unless you sell stock, there's generally no need to file annual tax returns. Our politicians and special interest groups are responsible for our tax code and complexity.

 

[razztazz]

The tax code is extremely complex, and it's a well-known concept that even the IRS can't consistently interpret it. I like the way they do it in Japan: taxes are withheld from each paycheck, and unless you sell stock, there's generally no need to file annual tax returns. Our politicians and special interest groups are responsible for our tax code and complexity.

Isn't the Japanese way biased against paycheck workers and lets slide anybody who gets money otherwise? Like... businesses...? People who sell a little this and a little that? Or does their income tax law apply only to earned wage-type income?

Special Interests are responsible to everything in this country. Politicians are responsible only to the extent they are paid BY the Special Interests. And the Courts have said that is the same thing as writing a poem or going to church.

This nonsense could stop but it's like the weather. Everybody complains about it but nobody does anything about it. Except we can't really do anything about the weather.

 

[Midpack]

The tax code is extremely complex, and it's a well-known concept that even the IRS can't consistently interpret it. Our politicians and special interest groups are responsible for our tax code and complexity.

IMO it's criminal how complex our tax codes are, thanks to politicians & special interests meddling. There is no reason it couldn't be a lot easier. It should be possible for the average citizen to understand and file their own taxes, but I doubt many can.

 

[Gumby]

The tax system rewards those who diligently study the rules. Since 1977, I have always prepared my own tax returns and have never had a problem.

It may be too late for some, but this post identifies many of the income limits and thresholds for 2020. You may find it helpful.

https://www.early-retirement.org/forums/f28/the-important-trigger-income-levels-2020-a-101090.html

 

[clobber]

The tax system rewards those who diligently study the rules. Since 1977, I have always prepared my own tax returns and have never had a problem.

It may be too late for some, but this post identifies many of the income limits and thresholds for 2020. You may find it helpful.

https://www.early-retirement.org/forums/f28/the-important-trigger-income-levels-2020-a-101090.html

I agree that is a good post, though it probably misses 10,000 things. For example AMT (which probably can't be put on there anyway).

I've never had a problem either, but PLENTY of surprises. I'm complaining about surprises.

 

[clobber]

IMO it's criminal how complex

+This

Not even necessarily how much, just how complex.

 

[Sunset]

The tax system rewards those who diligently study the rules. Since 1977, I have always prepared my own tax returns and have never had a problem.

It may be too late for some, but this post identifies many of the income limits and thresholds for 2020. You may find it helpful.

https://www.early-retirement.org/forums/f28/the-important-trigger-income-levels-2020-a-101090.html

+1

However, I wouldn't mind not studying the rules if we could simply have a flat tax of X percentage of what you earn.

But it will never happen as we have built an entire system of benefits and punishments (paying more tax) on top of what we have, so most would argue against a flat tax as unfair to someone.

 

[davebarnes]

You simplifiers probably want to take away my biodiesel mixture credit.
What kind of people are you?

 

[clobber]

You simplifiers probably want to take away my biodiesel mixture credit.
What kind of people are you?

Actually, what I want to do is send you a check in the mail for your bio diesel mixture. Removing ANY type of incentives from the tax code. Let tax be tax, and incentives be incentives.

As another example, forget the mortgage interest deduction. If the govt still wants to give an incentive for homebuying, then they just send you a check for $300 every month.

I realize I'm probably creating a Department of Incentives or something. AND that it would probably be just as complex as the tax code. But I would still do it.

 

[RobbieB]

I just buy Turbo Tax each year and let it figure it out.

 

[SevenUp]

I agree that is a good post, though it probably misses 10,000 things. For example AMT (which probably can't be put on there anyway).

I've never had a problem either, but PLENTY of surprises. I'm complaining about surprises.

Three pretty good tax estimation packages are mentioned at https://www.bogleheads.org/wiki/Tools_and_calculators#Tax_returns

I doubt any of those cover everything, but everything in the OP seems covered.

OK, perhaps not the "no idea what AGI will be" - as the ancient philosopher said, GIGO.

 

[stephenson]

Tax codes and structures, are, by their nature, a balance between the government needing money to be a government, and a wide variety of special interests ... some even aligned with government interests, ex: energy saving tax credits.

Flat rate?
Flat rate with special exceptions?
Sales tax only?
Etc.
Etc.
Etc.

 

[jollystomper]

Sadly, I do not see anything changing anytime soon.

Taxes are also used to encourage or discourage behaviors, which changes based on the economic/political slant du jour.

Also, few people feel they are not being taxed enough, while many feel someone else should be paying more in taxes.

 

[CardsFan]

IMO it's criminal how complex our tax codes are, thanks to politicians & special interests meddling. There is no reason it couldn't be a lot easier. It should be possible for the average citizen to understand and file their own taxes, but I doubt many can.

I think criminal is a strong word, but stupid, and in-efficient, both fit the bill.

 

[audreyh1]

I guess it’s one of those things I don’t worry about as it’s not going to change. They’ve tried to simplify several times during my adult lifetime and it always ends up going back to being more complex. We use TurboTax and I have some spreadsheets for estimated taxes, and we’ve dealt with it long enough we can figure tax implications of most financial decisions. We don’t end up putting in that many hours per year.

 

[Offgrid Organic Farmer]

I Despise the USA Tax System SO Much

It is what it is.

I do not expend the energy that would be required to 'hate' it.

My wife is an accountant. When we married she set out on a mission to never pay into Income taxation ever again.

That was over 30 years ago for us.

... I usually support the theory that you should not complain about paying a lot of tax. It usually means you make a lot of money. What I REALLY hate is how we get there.

Macro gripes:

1) We do not teach people (in school or otherwise) how to do their taxes.

I graduated from highschool in 1977. In my school system, one required course was bookkeeping, another was filing taxes.

... 2) It is nearly impossible to calculate your own taxes and be confident you got it right. I do it every year and I'm never that confident. Likewise, most of my colleagues complain that their tax pros often get it wrong.

That has not been my experience.

I have not paid income taxes since 1983.

 

[SecondCor521]

I agree that is a good post, though it probably misses 10,000 things. For example AMT (which probably can't be put on there anyway).

I've never had a problem either, but PLENTY of surprises. I'm complaining about surprises.

I agree with a lot of what you wrote in the OP. I particularly agree that the tax code is too complex. It also goes beyond collecting revenue fairly for necessary government services to incentivizing many behaviors. (I think that as long as most of us think that the proverbial other guy is paying the tax, then we're OK with the various incentives.)

I disagree that the surprises should be blamed wholly on the tax code being surprising:

With some exceptions, the tax code really doesn't change that much from year to year. When it does change in major ways, those changes can be tracked as they move through the legislative process, and are usually implemented for future years, both of which allow for time to plan and react.

And in the few cases I'm aware of where tax changes are made retroactively, they almost always (I think they have to be, in order to be Constitutional) benefit the taxpayer.

The AMT, for example, has been around since 1969. The AOTC has been around since 2009. The NIIT was enacted in 2010 and didn't take effect until 2013.

It is very valuable to be aware of the tax code and consider any tax consequences when making financial decisions, rather than just making decisions first and finding out about the tax consequences later.

 

[Midpack]

I guess it’s one of those things I don’t worry about as it’s not going to change. They’ve tried to simplify several times during my adult lifetime and it always ends up going back to being more complex. We use TurboTax and I have some spreadsheets for estimated taxes, and we’ve dealt with it long enough we can figure tax implications of most financial decisions. We don’t end up putting in that many hours per year.

Like many here, you have well above average financial savvy, computer and math skills. I manage fine with TT and spreadsheets too though I’d hate to do it manually. But put yourself in the shoes of the millions of Americans with average or below abilities when it comes to personal finance. Should our system be so far beyond their abilities?

 

[audreyh1]

Like many here, you have well above average financial savvy, computer and math skills. I manage fine with TT and spreadsheets too though I’d hate to do it manually. But put yourself in the shoes of the millions of Americans with average or below abilities when it comes to personal finance. Should our system be so far beyond their abilities?

Oh I definitely know that it's beyond many folks. I guess they go to get help.

 

[ocean view]

I find the Turbo Tax what-if spreadsheet to be a good quick and dirty tool IF my current facts are fairly similar to the prior year. However, if a lot of parts of my return are moving I do a “save as” to my prior year TT file and then start changing the income/expense items that I think will be materially different. Unlike the what-if worksheet, this will allow you to look at the full AMT calc and see what is driving you into AMT or any other form/tax that you didn’t realize you needed to be concerned about. Yes, the tax calc, std deductions, etc will still be at the prior year amounts, but it will get you a pretty good ballpark figure. I also find that just printing a blank form (AMT for example) and manually entering each line or doing the required math can lead to some ah ha moments. It won’t necessarily help you understand why the calc is what it is, but if you can understand how changing A impacts B it can be really enlightening for your tax planning.

 

[Skoach]

Taxes are also used to encourage or discourage behaviors, which changes based on the economic/political slant du jour.

^This Do not underestimate the social engineering power of the tax code. Retirement savings, home ownership, energy efficiency...the list goes on and on if you look hard enough.

 

[SecondCor521]

^This Do not underestimate the social engineering power of the tax code. Retirement savings, home ownership, energy efficiency...the list goes on and on if you look[-] hard enough[/-].

FIFY

It seems to me that the primary purpose of taxes is social engineering and that revenue generation is a distant second.

I think it would be relatively easy to make a social engineering argument for almost every line on a tax return except maybe your name and the Presidential Election Fund.

Filing status? Promotes marriage and benefits widows and widowers.
Address? Used to determine ACA FPL levels and thus your ACA subsidy.
SSN? If you don't have one it affects some tax things, thus promoting citizenship and registering with the SSA.
Age/blindness? Obviously benefits elderly and blind people with a bigger standard deduction.
Dependents? Promotes taking care of others.
Income? Stuff is income or not income for a myriad of reasons, and some income is exempt or preferenced.
...
Then once you get to adjustments, deductions, tax calculations and credits, I think it's obvious how those are social engineering items.

 

[Perryinva]

I graduated HS in 1976 and guarantee neither bookkeeping or filing taxes were even an elective at either HS I attended. The only time I paid to have my taxes done (required as part of a divorce to “make sure I was honest”), they were done wrong and I had to amend them. I let the ex get screwed by the IRS and didn’t tell her. Every other year I’ve done my own, last 20 via programs. I’ve only amended twice on my own taxes, both times for the same reason, massive confusion about college cost credits, in order to get my $2000 credit. My taxes have always been pretty simple, but I can easily agree with the ridiculous number of forms and incoherent instructions for all kinds of items.

 

[davebarnes]

You think yours is complex?

You could be in this situation.
https://www.bloomberg.com/news/arti...x-chaos-after-pandemic-lockdowns?srnd=premium
Stranded Super-Rich Confront Tax Chaos After Pandemic Lockdowns
“ As nations have closed borders, some affluent individuals are confronting unexpectedly complex tax situations. These include the prospect of higher levies from spending too many days in a foreign locale, or having to shelve plans to obtain tax breaks by moving abroad.”