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What Are Taxes Really Costing Americans?

April 15 looms large on the calendar for taxpayers. Don’t be fooled if you get a refund on your federal income tax return. Taxes represent a significant annual expense for many families, especially those that usually pay the United States Treasury, because the Internal Revenue Service (“IRS”) withheld your money throughout the year.

But IRS withholding is not the only cost facing taxpayers who fill out their tax forms by April 15.

The current income tax scheme imposes a larger cost on individuals than the total tax figure taxpayers calculate on their individual income tax return. According to the IRS, Americans paid over $105 billion in individual income taxes in 2012 (the most recent year for which data is available). However, to understand the full cost of today’s convoluted income tax code we must consider the time and money Americans spend preparing and filing individual income tax returns by April 15 each year.

Time:

For those of us who prepare our own income tax returns, April 15’s approach means several hours lost collecting information, reading guidance, entering numbers and double-checking calculations, and even manually assembling the forms according to IRS dictates. In years past, I would often do all of this work overnight while my family slept just so I would be not give up any time at work or parenting my young children during the day.

Although I have never used a stopwatch to measure the exact time I personally spend preparing my income taxes, I know it takes hours, if not days, to complete the task. Some organizations do publish estimates of the time required for each taxpayer to file each individual, nonbusiness return is 8 hours while American Action Forum concludes that each return requires an average of 11.8 hours to complete and file. Because these numbers are averages, many returns require much more time to complete.

Money

For people who have neither the time nor the desire to spend hours or even days preparing an individual income tax return, an entire industry has emerged to help them file tax returns, including accounting and audit firms. In addition, multiple international tax preparation franchises have offices across Wyoming and the country.

Store shelves are also filled with tax preparation software or program keys that promise buyers that do-it-yourself tax returns can be made less complicated and more accurate simply by using these products.

Increasingly aggressive marketing for both tax preparation firms and software programs has appeared in recent years. This includes everything from someone dressed in a costume and waving a sign at drivers outside of a tax preparation office to the frequent television and radio advertisements for an international tax preparation franchise.

Clearly, individual income tax preparation has become big business with significant profit opportunities. How much, then, do American households spend, in addition to the total tax, on tax preparation? One publicly traded tax preparation service provider, H&R Block, Inc., reported earning more than $1.79 billion in tax preparation fees in 2014. Another, Liberty Tax, Inc., reported earning an additional $14 million in tax preparation fees the same year. These costs are in addition to the total federal income taxes that people actually pay to Uncle Sam.

According to the American Action Form, “The IRS reports that tax compliance costs $33.7 billion annually” but the AAF independently calculated the total tax compliance costs, including all of the IRS’s paperwork, at $181.9 billion.

No matter what you include in the additional costs imposed by the federal tax code on individuals, it is clear that American’s tax burden is much larger than the money delivered to the Treasury to be allocated by politicians in what most consider a wasteful manner. The cost of taxes for Americans must include both the total tax figure and the additional cost of compliance. Therefore, the questions that people should ask when politicians discuss taxes is how much more they will be forced to pay for taxes instead of simply in taxes – and, after all the waste and inefficiency of the collection process — what are government spending programs actually accomplishing?

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Thursday, 23 November 2017

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