Confronting the Complex Tax Code a Yearly Ritual
RENEE MONTAGNE, host:
Today's business segment focuses on your money and growing confusion over how much to pay in taxes.
Americans are expected to receive a record amount in tax refunds this year. They're also likely to pay more in back-taxes and penalties to the Internal Revenue Service as the number of audits also increases.
Tax expert Ellen Katz says that suggests our increasingly complex tax code is making it harder for Americans to figure out what they owe. She's the editor of the Tax Savings Report, and she joins us.
Ms. ELLEN KATZ (Editor, Tax Savings Report): Hello.
MONTAGNE: Why is our tax code so complex?
Ms. KATZ: Well, the short answer is politics. Politicians have used the tax code to reward their constituents, so the tax code has been used to help people out a little bit; almost, in some cases, as a band-aid solution for bigger problems.
Not only do we add all these different provisions in, but each one has its own set of rules. Certain tax breaks phase out when income reaches a certain level. They're ending after two years, four years, sometimes ten years. So each year, we have changes in terms of inflation adjustments, new tax provisions coming in, last year wasn't a particularly big year for tax changes, but we had five separate laws that involved tax law.
MONTAGNE: And some of the recent changes in the tax code that has made it more complex?
Ms. KATZ: There's all sorts of examples. Last year Congress changed the tax law to give taxpayers a better tax break for hybrid cars. We used to have a deduction for hybrid cars; now there's a tax credit. The tax credit is potentially more valuable for taxpayers, but it's so complicated. It's based on things like fuel economy, conservation over the lifetime of the car, and how many cars are being sold by the manufacturer at the car dealer.
MONTAGNE: Oh, come on. Seriously, you'd have to be an investigator to figure out just how to file for this one.
Ms. KATZ: Right. What I hear is, call your accountant before you buy a car, because no taxpayer could figure out whether or not they qualify for the tax break for hybrid cars.
MONTAGNE: What then is a taxpayer to do if, say, you want to do your own taxes?
Ms. KATZ: If you have a complicated tax situation, you own a home, you own a business, you have children in college, it's probably not a good idea to do your own taxes. We all sign a tax return that says under penalties of perjury I declare that this tax return is true, correct, and complete. If the tax code is so complex, how can any of us sign that and know that what we're signing is true and correct?
MONTAGNE: Ellen Katz is editor of Tax Savings Report and editor of BizActions, which publishes newsletters for accountants.
Thanks very much for joining us.
Ms. KATZ: Thank you.