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Simpler Tax Laws

May 13, 2011 | Filed Under Tax Articles | Comments Off

Simplifying the tax code has been the cry of the common citizen for decades and yet the tax laws only continue to increase in complexity.
A House Ways and Means Committee hearing in April heard once again the need for simpler tax laws. The American Institute of Certified Public Accountants was one of the voices heard.

“Individual taxpayers and their families need simple tax laws so they can understand the rules and follow them correctly in a cost-efficient manner”, Annette Nellen, chair of the AICPA Individual Income Taxation Technical Resource Panel, said.

Ms. Nellen highlighted education as a prime example of the complexity woven into the tax code, that often confuses and intimidates taxpayers. Not to mention, costing them potential tax savings.

“Few, if any, taxpayers are both aware of all the education tax incentives and fewer still can perform the analysis to determine which incentive is most advantageous,”  Nellen said.  “The  requirements, eligibility rules, definitions, and income phase-outs vary from incentive to incentive.”

IRS Publication 970  takes over 80 pages to explain all the education provisions applicable to the two-page Education Credits Form 970.

A couple of years ago, a Government Accountability Office report, determined that nearly one-fifth of eligible taxpayers had not claimed either a tuition deduction or a tax credit that could have reduced their tax liability by $219 on average.

Over 6.1 billion hours a year are spent by taxpayers and businesses in complying with tax-filing requirements.  Imagine what a nation of productive workers could accomplish with a regained 6.1 billion hours!

Education of course isn’t the only area that is bogged down in tax “red-tape”.  The Earned Income Tax Credit (EITC), Alternative Minimum Tax, mileage rates, due dates as well as most of the tax code should be simplified.

The taxpayer isn’t the only one to benefit from proposed tax reform. The government is estimated to have lost revenue of between $9.6 billion to $11.4 billion in 2005 from “over claims” in the EITC.

Reducing the complexity in the tax law would improve compliancy by a tax base that could complete a tax return accurately and quickly.  More taxpayers would be able to claim benefits they were entitled to and the government would more easily be able to identify inaccuracies and out right fraud.

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