Understanding The Federal Income Tax...Tax Simplification?

Understanding The Federal Income Tax...Tax Simplification?

Understanding The Federal Income Tax...Tax Simplification?

Understanding The Federal Income Tax...Tax Simplification?

Understanding The Federal Income Tax...Tax Simplification?

Understanding The Federal Income Tax...Tax Simplification?

Understanding The Federal Income Tax...Tax Simplification?

Understanding The Federal Income Tax...Tax Simplification?

Understanding The Federal Income Tax...Tax Simplification?

​​​​​​​Saul Klein
April 29, 2022

Have you heard this phrase before...Tax Simplification?


The tax laws are anything but simple but don't hold your breath waiting for Congress to make it easier to understand, because that will never happen. Complexity is part of the design and intent of tax policy at the Federal Level.

The root of the problem is that the Congress of the United States cannot live within its means, the way that you and I must.

It spends and spends, running up the deficit into hundreds of billions to Trillions of dollars a year, year after year. Rather than cut spending, which would not be politically acceptable to each congressman's constituency, it looks for ways to increase revenues. 

If the government can increase revenues without you and I noticing, that is exactly what it will do. By keeping the tax laws complex, Congress can increase revenues by tens to hundreds of millions of dollars by making a small adjustment to the tax code, which most people will not even notice. 

Adding an additional tax for billionaires does not solve the problem, it obfuscates it.

An interesting note...the government refers to mine and your "tax deductions" as "expenditures." All of the money we earn belongs to the government. When we are allowed to keep some of it, through what you and I call "deductions," the Government refers to them as "Expenditures." The language is telling. 

Sometimes you hear people mention a "flat tax". Forget it, it will never happen! Your choices? You must understand the tax law and make it work for you. You can also expect taxes to increase. The Government's appetite for spending our money is insatiable. 

An interesting fact, revealed in a study by two Ohio State economists, is that between 1965 and 1985, every tax increase of $1 brought with it a corresponding increase in government spending of $1.48. Increasing taxes and revenues has not, historically, reduced government spending and the deficit, but just the opposite.

Another important consideration is that federal taxes provide only part of the money to run the government. Another way the government generates capital for its operations is through the Federal Reserve, the US Central Bank. It prints money (borrows), which is one of the root causes of inflation (subject matter for another future post.)

Remember when $100 was a LOT of money? Inflation is a "Hidden Tax."

Speaking of filing your national tax return annually, that day is typically April 15, except when that day falls on a weekend or holiday as in April 18, 2022. In the words of Thomas Jefferson:

"I place the economy among the first and most important virtues, and public debt as the greatest of dangers to be feared. 
To preserve our independence, we must not let our rulers load us with perpetual debt. 

If we run into such debts, we must be taxed in our meat and drink, in our necessities and in our comforts, in our labor and in our amusements. 

If we can prevent the government from wasting the labor of the people, under the pretense of caring for them, they will be happy."

As a tax preparer for over 20 years, and a Certified Financial Planner (CFP) for the last 30 plus years, my advice is:
If you are not ready to file, make sure to file an extension.

Filing an extension does not mean you can delay any amount of taxes you owe without penalty. You pay the estimated amount owed with your extension.

And remember the words of Justice Learned Hand:
"Over and over again courts have said there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions."

Hopefully, you kept good records to allow you to substantiate any deductions, should you be called for an audit by the IRS.

What is tax-deductible on your Schedule C?
What I have always told my tax clients:
"Anything that is reasonable and necessary in the pursuit of taxable income."

And keep in mind, the Income Tax "Laws" in this country is not only for revenue-raising purposes but are also used for Social and Economic Engineering of our Culture and Society.

Saul Klein

Saul Klein is widely recognized as the real estate industry’s first Internet Evangelist. He was selected by the National Association Of REALTORS® as one of the “25 Most Influential People in the Real Estate Industry” in 2003, and has been selected as one of the “100 Most Influential Real Estate People” by Inman News in 2005, 2006, 2007, 2008, 2009, 2010 and 2011, 2012, 2013.

Contact: Saul@RealTown.com

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