Oh boy... it's tax time again, people

[Warph]

If you're having trouble understanding a section of the IRS Secret Tax Code, all you have to do is call the IRS Taxpayer Assistance Program, and in a matter of seconds, thanks to computerized electronics, you are placed on hold for several hours before finally being connected to trained IRS personnel dispensing tax advice that is statistically no more likely to be correct than if you asked my dog Chili Pot to indicate the answer by scratching it in the dirt.

Or... you can ask me for help ( as some of you already have).  For the past few years at Tax time, I've been helping people by answering their Tax questions, which has made me an expert on tax preparation.  With tax season upon us, my email queue is filling up with questions from readers.  It's tax time.  I know this because I'm staring at documents that make no sense to me, no matter how many beers I drink.

So...here we go.  First email:

Q: My dog R.A.M.B.O.is panting heavily. What could it be? -- LarryJ from California
A: You appear to have the wrong advice column, but it could be that your dog is self-employed and has fallen behind on his quarterly IRS payments.  Contact the IRS and negotiate a biscuit installment plan immediately.


Q: My wife says we can get a big deduction by donating our underwear to charity. True? -- Jarhead from KS.
A: I remember news reports about the Clintons deducting boxes of old underwear back in the 1990s, but don't get your hopes up.  It's doubtful your deduction will be as big as the one generated by Bill's boxers.


Q: I am self-employed and earned $450,000 last year.  I can make more working longer hours, (40 to be exact) but it seems like every extra dollar is taxed at 50 percent. -- Waldo in Colorado
A: I hate to break it to you, but you are mostly correct, but sorry to say, you are in the 87-percent federal income tax bracket.  Social Security and Medicare total 15.3 percent (though there is a temporary 2 percent break).  You also subtract any retirement income from Social Security and pensions included in your federal taxable income, up to $24,000 for those over age 65 and up to $20,000 for those aged 55 to 65.  This benefit isn't available to those under age 55.  On joint returns each spouse, if over age 55, can subtract retirement income received if working in the Industrie de ski.  CO income tax is 4.63 percent and local is 'whatever you want it to be' percent.  Every dollar you earn beyond your current income is taxed at 87.37 percent.  And I turned you into the IRS so expect a knock on the door after you read this.  I would say you are dealing because nobody should be making that kind of money legally in this day and age... except lawyers and politicans.


Q: If you don't want to work, you have to work to earn enough money so that you won't have to work, right? -- Teresa in Dodge City, Kansas
A. uhh.. yeah.


Q: The number of words dealing with income taxes in the Internal Revenue Code and IRS regulations rose nearly tenfold between 1955 and 2005, from 718,000 to more than 7 million. How is a mugger different from the Internal Revenue Service? -- SixDogs from Airdale, KSansas
A: Both take your money, but the mugger doesn't make you fill out forms.


Q: My dog stopped panting, but now my wife is panting! -- LarryJ in CA
A: Hmmmm... it could be one of two things.  But, don't worry.  Panting is a common affliction for Americans this time of year, as they spend precious hours complying with complex tax laws.  Give your wife some Gin.


Q: Someone told me that I am paying taxes on gasoline, utility bills, retail goods and many other things I am not even aware of. --  Spud in Potatoville, Idaho
A: That is correct.  If you were to calculate all the taxes you are paying, you would discover that well more than half your income is funding one tax or another.  If Obuma doesn't get his spending under control, you'd better hold tight to your wallet, because taxes are going to go out of sight!


Q: Didn't Franklin Delano Roosevelt say of Social Security that, "...no damn politician will ever take it away?" -- Diane in Delaware, New Jersey
A: FDR (whom I channel from time to time) did say that and, boy, was he right.  Politicians have expanded the program well beyond its initial focus and now the only thing politicians are taking away is our money.


Q: This may sound dumb, but what is a tax bracket? -- Ross in (Hidden)
A: A tax bracket is a heavy metal object that the government uses to hit you over the head every time you succeed in earning more money.


Q: Americans need to pay higher taxes like they do in Europe. -- Frank in Oklahoma.
A: Do you really want America to be more like Europe?  Most European countries have high government spending, high unemployment, slow growth rates, high inflation and governments on the verge of bankruptcy.  Come to think of it, America is more like Europe than Europe, so prepare to pay high taxes like they do in Europe if you re-elect Obuma.  Earlier today, the White House released President Obuma's tax return.  Not surprisingly, under dependents, the president listed the Middle East.


Q: His wife is still panting, but we're out of Gin. He drank it all. What now? -- R.A.M.B.O. in CA.
A: You'll have to go to the Liquor store and buy more and pay a big fat state tax markup in the process, thanks to Gov. Moonbeam.


Q: If people are sick and tired of paying taxes, they should do what I did: Vote for Obuma!  I haven't paid a penny in taxes in more than three years and get all the freebies I want! -- Patriot at Incognito, KS
A: Hmmm.... now there's a thought.

[Warph]

Boy, is our tax system in a mess.

The mess began in 1913, when the 16th Amendment was passed and Americans were forced to pay federal taxes on their income.

People who made more than $3,000... a lot of dough in those days.... had to pay 1 percent to the feds.  The top rate, which then applied to the superrich, was a whopping 7 percent!

Those rates didn't last long.

During World War I, the top rate shot up to 77 percent to finance our war efforts.  After the war, it dropped down to 25 percent, still 17 points higher than it was before the war.

Tax rates held steady until Franklin Delano "Big Government" Roosevelt came to town.  Under FDR, the top rate shot up to 78 percent by 1936.

Then, during World War II, the top rate hit 94 percent.  After the war, it remained above 90 percent into the early 1960s.

JFK promised to get America moving again and he did.  Under his administration, the top rate was lowered from 90 percent to 70 percent... with lots of loopholes to shield income from taxes.

The economy took off, but in spite of the positive results, lower taxes cause growth, duh! ... the top rate wasn't lowered again until Ronald Reagan came to town.

In 1981, Reagan lowered the top rate to 50 percent. In 1986, he led the charge for simplification, helping eliminate most loopholes and reducing 15 income brackets to two.  The top rate was lowered to 28 percent, the bottom rate to 15 percent.

The economy exploded.

But in 1990, George H.W. "Don't Read My Lips" Bush caved to Congress and raised taxes.  He also added a third income bracket.

Then, in 1993, Bill "Franklin Delano" Clinton raised taxes yet again, adding two more brackets. Clinton even raised taxes retroactively on dead people... who'd thought they'd finally found tax relief.

In the mid-'90s, with Republicans running Congress, taxes were lowered somewhat, but were also made extremely complicated as hundreds of changes were made to the tax code.

Whereas the tax code was 16 pages in 1913, it is now more than 70,000 pages and growing.  Americans annually spend millions of hours and billions of dollars to avoid IRS audits.

I disappear for a week every year as I get my taxes organized for my CPA.

But there is some good news: Republicans and Democrats alike agree that tax reform is one of the best things we can do to get the economy rolling again and address our massive deficit.

Of course, to most Democrats, tax reform means higher tax rates, which is silly.  The problem isn't tax rates... it's tax receipts.

Why not eliminate deductions across the board... so companies such as GE, which now use loopholes to pay zerot ax, must pay a fixed percentage of their billion-dollar profits... and lower tax rates?

The net result will be that people and companies that make money will end up paying more in taxes than they do now... but they won't mind, because with simplified, lower rates, they'll be encouraged to invest and hire.  Our deficit will shrink and we'll all be better off.

Unfortunately, Obuma doesn't appear to have any interest in leading broad tax reform (one of the few issues on which he could rally bipartisan support) and so it is dead.

Which is why our tax system is... still.... in a helluva mess.

[Warph]

I stumbled upon Joe Blows' 1959 income tax return a few years ago.  How I long for the simplicity he enjoyed when he filed that year's taxes.

For 1959, he paid a measly 5 percent in federal taxes, even though his name wasn't Rockefeller.

How did he do it?  It was easy.  For a year when the top income tax rate was 91 percent -- President Kennedy would slash rates a few years later... deductions were many.

Even middle-class people like my dad enjoyed their fair share of perks.

He evidently was a heavy smoker (who wasn't back then?) and was able to deduct every penny he paid in cigarette taxes.

He was able to deduct every penny he paid in gasoline taxes.  If we had such a perk now, the federal government would go broke (that is, more broke than it is now).

And he was able to deduct every penny he paid a state sales tax in, another wonderful perk that would save the average person a boatload in federal taxes every year.

He took a $600 tax deduction for each of his two dependents, his two daughters, and a lot of dough relative to his income.

For 2011, the deduction for each dependent is $3,750.  On paper that is six times what he got in 1959.... but if properly adjusted for inflation it would be about $5,000 today.

Here's one that grabbed my attention: In 1959, he paid only 2.5 percent of his income toward FICA (then, Social Security... now, Social Security, Medicare and Medicaid).

Now, aside from a temporary 2-percentage-point FICA tax break, the average employee pays 7.65 percent and his or her employer kicks in another 7.65 percent.

For someone self-employed today, they would have the pleasure of paying the full 15.3 percent.  Despite the 2-percentage-point break for 2011, they will write out a sizable check to bring current the more than $12,000 in FICA contributions that they are on the hook for.

In any event, Joe had his fair share of simple deductions in 1959, which helped offset his federal taxes.  That helped him keep his total federal tax tab at a measly 5 percent.

Better yet, his tax form was one sheet of paper printed on both sides.  He had no calculator, nor did he need one.

He did a test run in pencil on one copy of the form, then finalized a second in ink and mailed it in; Joe probably always got a refund.

Which is why I long for the simplicity he enjoyed back then.

In 1959, the federal tax code was about 15,000 pages.  Today, it is more than 70,000 pages.

Unlike Joe who was able to calculate his taxes quickly, I spend days getting mine in order, so I can hand them off to my CPA, so he can tell me I owe lots more than I feared I would.

Still, as April 17 approaches in a few hours, I look back fondly on 1959.  

[larryJ]

Ha Ha.......

Okay, one at a time............

R.A.M.B.O. is panting because he heard you have a dog named "Chili Pot"  and he is partial to "hot" dogs.

Wife drank all the gin.  But, I have found a way to ease her suffering. 

Larryj

[Patriot]

Q: If people are sick and tired of paying taxes, they should do what I did: Vote for Obuma!  I haven't paid a penny in taxes in more than three years and get all the freebies I want! -- Patriot at Incognito, KS
A: Hmmm.... now there's a thought.

ROTFLMAO! 

With three corporations, a sole proprietorship, a wife, 4 dogs, a house cat, 5 barn cats, a goat herd & a vegie garden... it wasn't a vote for the O'Bummer. 

The real secret is............................................................. TurboTax!  And having Turbo Timothy for an adviser helps too!

Thanks for the laugh, Warph.

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