C |
onstructing a Tax Return is an interesting exercise.
It is a customized financial exercise that feels good to finish, making it an emotional one as well. It’s a moral exercise, and it’s an intellectual one. It's also an insightful snapshot of a period in your life.
Some of us enjoy putting the pieces together to get view of the picture of your life, just like constructing a jigsaw puzzle on a lazy summer night.
Taxes provide for public services, and the redistribution of wealth (from those that have, to those considered to have not).
Congress initially creates the tax laws, and on behalf of the federal government, the Internal Revenue Service (IRS) implements the law.
The law is complicated, it’s fascinating, it’s frustrating, and it’s full of minutiae, detail and mathematical formulae. It‘s open to interpretation by taxpayers and practitioners, and can be challenged in different federal courts, although the Treasury Department and the IRS provide guidance.
A Return, like a house, is constructed from the bottom, up. Bottom pages feed information up to middle pages, and middle pages, eventually to the top two pages of some version of the Form 1040.
The system is also complicated and there are many 'tests' a Return must pass to make sure you can do certain things (e.g. deduction amounts, deductible retirement plan contributions, minimum taxes, i.e. the Alternative Minimum Tax, etc.).
Records must be kept to support your claims, in case a tax authority ever asks for proof - after all, the US Tax System, is a voluntary system and an honor system - one that many people selfishly abuse.
There are generally two sets of rules of which to be aware: those that trigger the need to file a Return (e.g. electronic or paper), and those that govern the settlement of accounts (i.e. money).
Generally, a single person must file when their income is $9,500 or more (unless they're filing to get a refund, are due credits, or are self-employed, or have capital gains/losses).
The average American Taxpayer pays about a third of their income to federal, state & local income taxes. Therefore, tax planning is one of the best investments you can make. Few stocks and investments can consistently earn you 34%.
Good tax planning involves:
ü Good record keeping
ü Engaging a qualified tax/financial professional who can patiently and clearly explain things, identify issues & solutions, and integrate taxes with your other financial planning
ü Education
ü Solid tax preparation
ü Smart tax planning
Former Associate Supreme Court Justice George Sutherland said, "The legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether avoid them, by means which the law permits, cannot be doubted."
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