Surveys repeatedly show that taxpayers don’t know a whole lot about fundamental terms and concepts. Now that’s hardly a surprise, you might be thinking. So, file that bombshell under Dog Bites Man.
Our national unawareness prompted these observations in an article titled, “Form 1040? What’s a Form 1040?” that appeared in the New York Times on April 11, 1993, just several days before the annual filing deadline: “The country is suffering from a massive case of tax illiteracy that goes beyond the inherent complexity of the system and cuts across every economic and educational stratum.” Even worse, “Research shows that more than half the population does not know the meaning of a progressive tax system – in which the more you earn, the higher your tax rate – even when given the correct answer in a multiple-choice question.”
The level of understanding, the article says, sags some more when it comes to “terms and concepts that taxpayers have to deal with in preparing returns.” About 75 percent of them are unable to understand that when someone is in the 25 percent bracket, only the part of a person’s income that falls into that bracket gets taxed at a 25 percent rate. And nearly 80 percent “don’t know that a tax credit, rather than a tax exemption or deduction, can reduce taxes the most.”
The New York Times identified the authors of the article as two top executives of “a company that simplifies government and business information. The Internal Revenue Service retained the firm to make tax forms easier to use but did not take its recommendations.”
Fast-forward from what the New York Times reported in 1993 to right now. How likely is it that a budget-strapped IRS will endeavor to enlighten today’s taxpayers about basic concepts – for instance, how deductions differ from credits? My fellow tax mavens overwhelmingly conclude that it’ll be injurious to their health if they inhale and remain that way until that happens.
Their despair notwithstanding, I urge them to persevere and tell them to turn to the Talmud, a vast compilation of the Oral Law of the Jews, with rabbinical elucidations, elaborations, and commentaries, in contradistinction to the Scriptures or Written Laws. Those who heed my advice will quickly discover a celebrated Talmud teaching that is right on point: The gates of redemption are always open and anyone who wishes to enter may enter – words that perhaps will overcome bureaucratic inertia and inspire the IRS to improve its forms and publications.
My free, unsolicited advice for IRS staffers struggling to craft concise, plain-language explanations of why, say, credits trump deductions is to turn to the articles that are in my archive.
Several of my articles include these four right-on-point sentences: Credits lower a person’s taxes dollar for dollar, making them more valuable than deductions, which merely reduce the amount of income on which taxes are figured. The distinction is critical. A deduction of $1,000 saves $250 in taxes for someone in a federal and state bracket of 25 percent, but only $100 for someone in a bracket of 10 percent. A credit of $1,000 reduces taxes by that amount, whatever someone’s bracket is.
Additionalarticles. A reminder for accountants who would welcome advice on how to alert clients to tactics that trim taxes for this year and even give a head start for next year: Delve into the archive of my articles (more than 110 and counting).
Stay competitive with your fellow accountants who turn to the articles when, say, they correspond with clients or they want to show clients how to nimbly sidestep pitfalls while capitalizing on opportunities to diminish, delay, or deep-six payments of sizable amounts that would otherwise swell IRS coffers.
Also be mindful of the articles when you strive to build name recognition, a goal attainable only by choosing and implementing strategies that set you apart from ferocious competition. Use the articles to prepare talks to audiences, such as business owners, investors, and retirees.
Attorney and author Julian Block is frequently quoted in the New York Times, Wall Street Journal, and the Washington Post. He has been cited as “a leading tax professional” (New York Times), an “accomplished writer on taxes...