Debt Consolidation

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Don’t Understand the Tax Code? You’re Not Alone

Filed under: Family Finance
Tags: , , — Written by: Simos
April 16, 2010
Feeling a little tax pressure? You're not alone.

Feeling a little tax pressure? You're not alone.
Photo by: Davide Guglielmo (Stock Exchange)

It’s April 16th and taxpayers around the U.S. are breathing a collective sigh of relief as Tax Day has come and gone for another year — at least, that’s the reaction among those not scrambling to file extensions and deal with last minute IRS complications. If you feel overwhelmed, you’re not alone. One of the best reasons to seek help from an independent financial advisor is that although 90% of Americans file taxes, it can be argued that no one really understands the tax code.

The Tax Code Debate: More Than Just a Topic for April

Effectively managing your obligations, knowing your deductions, and mining the most out of your tax strategy is a key part of staying out of debt. But it’s also so complex that, by many estimates, most people don’t do it: 50% or more of American taxpayers are just as likely to use a service like H&R Block as they are to file taxes on their own. And web-enabled software services like TurboTax have further redefined the tax landscape. But are these just Band-Aids on the wound? What does the tax code really mean to the average consumer, flooded with credit card debt or mortgage worries?

Tax season may come and go, but everyone concerned about their finances should know about the tax debate. Since the first income tax was imposed in the 1860s, positions have ranged from calling it unconstitutional to too complex to just plain unnecessary. No matter how you feel about it, though, the most likely candidate to reform the tax code in the near future is probably The Bipartisan Tax Fairness and Simplification Act of 2010 sponsored by Sens. Ron Wyden (D-Oregon) and Judd Gregg (R-New Hampshire). With many of President G. W. Bush’s tax cuts expiring at year’s end, legislative activity on the tax code has reached a high. And this may be a good thing: the actual nuts and bolts of the tax code are often a moribund topic in practice, no matter how contentious in theory.

What Does the New Legislation Mean for Us?

Sens. Wyden and Gregg have a lot of good talking points, claiming their proposals work to eliminate a collective expense of nearly two hundred billion dollars per year on tax compliance, shrinking the number of tax brackets, and providing exemptions on some capital gains. The most surprising possibility? “Easy” tax return forms, prepared by the IRS from sweeping information about taxpayers’ finances, that reduces each individual’s tax compliance to a rubber stamp — and may kill off a large part of the tax compliance industry. Some commentators have expressed worry that technology is preventing tax reform and that this, and future efforts, might simply become victims of inertia.

The real implications of the reform, no matter what final version gets passed, are clear: this is where practical political action and debt relief converge. Get informed, get active, and let your legislators know where you, the taxpayer, stand on the issues, while Washington’s attention is on them. In the meantime, hold tight, and keep your trusted independent financial advisor on speed dial: when Congress sets out to make changes to such a sweeping and complicated part of our lives, there’s no telling where we’ll end up! Write your representatives and your senators today.

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