We’ve all heard the horror stories, and now we have even more reason to mistrust this arcane system. The New York Times has a piece that covers the Tax Advocate, Nina Olson, and her staff presenting a report to congress. The report lays out the truth behind refunds frozen by the IRS due to questionable returns being filed.
Most people who were flagged were seeking the earned income credit. These are poor people, those with an income average of less than $13000 a year. They were the targets. These targets are mostly single parents and married couples with children. Another large portion consists of people trying to get off welfare by finding their own income. In many cases, the IRS was ordered to provide no hint of the return’s questionability when the refund was frozen.
Now, here’s the most relevant issue behind this whole shenanigans:
Ms. Olson said the I.R.S. devoted vastly more resources to pursing questionable refunds by the poor, which she said cannot involve more than $9 billion, than to a $100 billion problem with unreported incomes from small businesses that deal only in cash, many of which do not even file tax returns.
One of my mentors once told me that you “pick your lowest hanging apples first”… meaning you pick your most easily accessible bounty of fruit, and once that’s done then you can work on the rest of it. I think we could be more fruitful by focusing on that $100 billion instead of the $9 billion.
Neo posted a nice link to the PayCheckCalculator that gives you a really good idea of what to expect for your paycheck after 2006 taxesare deducted.
JLP discusses a good deal he got on some tax software, TaxCut by H&R Block. I’ve never used it. Having only used TaxAct, I’m interested in seeing some reviews comparing TaxAct, TurboTax, and TaxCut.
This lesson in The Wealthy Barber covers investing and taxes. The author and his siblings are told by Roy, the barber, that to make good decisions regarding investments other than real-estate suck as stocks and bonds, takes knowledge, math skills, self-discipline, and intuition. He suggests seeking professional advice if you choose to do this. This may not be the best advice for some of the more savvy readers, but if you’re not sure or committed, then he provides another suggestion I like. If you happen upon a large lump sum of money, increase your regular contribution to your tax-advantaged savings until the lump sum is exhausted. Doing this puts dollar-cost averaging on our side, and we still have the found fortune.
The second part of this lesson is taxes. Again, the author suggests seeking professional assistance if you have special circumstances, such as being self-employed or owning a home, because of the complicated laws that allow for some helpful deductions.
The basic concept related to both of these lessons is “A dollar saved is two dollars earned.”