It occurred to me last week that I had not filed my taxes (or even started) yet, and it was already April. Luckily, I realized that I was somehow a full week ahead, and at that point, it was only the last week of March (which is when I usually file) but among homework assignments, shifts at work, and self-imposed obligations to friends, I couldn't find any time to take care of them. Luckily, I had a later shift at one point this week and there is an H&R Block in the same shopping center as where I work, so I popped in with my tax information to see what would happen.
"I am coming in to start my taxes," I explained to the secretary when she asked me how they could help. She asked me if I had an appointment, "nope." To which she disappointingly said, "It's APRIL ... and you're coming in ... to START your taxes ... WITHOUT an appointment?" "Yea, basically." I already knew where this was headed, and it was the opposite of where it should be going. "Well... *exasperated sigh* it just so happens that we had a cancellation."
This is why I often call myself "Mr. Lucky."
On one hand, it amazes me how much people don't know about the tax laws in our country. On the other hand, it amazes me how complex the tax laws in our country are. For both reasons, I have always gone to a tax professional to file my taxes. It allows me to be lazy and laissez faire. Also, I was once told very early in my career "H&R Block pays for itself." It's true. A few years ago, I owed some taxes (several hundred dollars were due) so we ran the numbers, and I could get a couple dollars back if I maxed out pre-tax contributions into my IRA. I could have paid the government money and never seen it again, or I could have paid a little bit more to myself and keep it in my possession. Of course, I did the latter. But I never would have known it without H&R Block.
More importantly, I was employed for half of this past year and then under-/unemployed for the rest of the year, so I knew my 2011 tax situation would be unique. Also, I was a student this year but I did not even consider that there would be significant tax breaks. As it turned out, the tax deductions that I had in mind (and one that the average taxpayer would have used) would have reduced my taxes. Conversely, there were some tax credits available for full-time students such as myself (I don't think of myself as a "full-time student," but I qualify as one) from which I could get a large refund.
If you don't know the difference between a tax credit and a tax deduction, then you probably need assistance from a professional. You could pay taxes on your own and save the $100 fee from H&R Block, but you will risk missing out on potential "loopholes" to reduce those taxes. For example, my taxes were 15% this year but what I paid (owed) was 1%. I proudly felt like Bobby The Brain Heenan when I heard that fact.
Another sign you may need a tax professional is if you don't know that when I say "my taxes were 15%" that I mean, my last dollar earned was taxed at 15%. The Internal Revenue Code uses a marginal tax rate, which means everyone is taxed the same way. The first $9,000 we earn annually is not taxed ... at all ... for everyone. The next $8,500 is taxed at 10%. The next $8,500 is taxed at 15%. Above that, it is taxed at 25% until you've earned $85,000 over that original amount (which I believe it $9,000, but I could be wrong), and then you reach the 28% tax bracket.
If you think your being in the 28% tax bracket meant every dollar you earned was taxed at 28%, then you're wrong (but you're in good company).
Another common misunderstanding is if you receive a bonus at work and the taxes are withheld at a higher percentage than on your ordinary income. Many people are mistakenly under the impression that bonuses are TAXED at a higher rate. This is untrue! The increased withholding is to protect you from yourself. You were not expecting the bonus (ideally) so withholding more of it means more of your taxes are paid by the end of the year than the remainder of your earned income. Unfortunately, correcting people on either point is usually a fruitless endeavor, because (for whatever reasons) taxes are just misunderstood by the American public at large.
If you hear politicians push for "flat tax," this is the reason why. Unfortunately, I think it's a bad idea. Very bad idea. I like the marginal (tiered) tax rates in this country myself. Part of the reason it is a bad idea is that it would need an entire re-write of the entire Internal Revenue Code, and as confusing as it is now, at least enough people understand it. If the entire book were rewritten, then it would be a crap-shoot whether it was written for better or worse.
Albeit, it would make filing taxes a lot easier.
