Most People OverPay Their Taxes

I have always taken issue with the underlying sentiment around the country that everyone is a tax cheater and we need a bigger and stronger IRS to catch them. That has never been my experience with the thousands of people I work with every year. Quite the opposite. What I have always seen is that for various reasons, people pay too much in taxes.

These reasons include:
Ignorance of the tax laws and what legitimate deductions are allowed to them. The tax code is a monstrosity and anyone who tries to tackle it themselves is almost guaranteed to miss big tax saving opportunities.

Fear of IRS. People are so petrified of offending IRS, that they frequently intentionally don't claim legitimate deductions in order to stay in the "safe zone." This self styled protection insurance often costs these people several thousand dollars in extra taxes each year.

Laziness and sloppy bookkeeping are also big reasons people miss legal tax deductions. Rather than keep track of their itemized deductions, people just take the easy (lazy) route and claim the standard deduction without even trying to see if their actual Schedule A deductions can beat that. I have always believed that you should keep track of every single expenditure and see which is higher, the actual itemized deductions or the standard one. This can change from year to year. It's an expensive assumption to conclude that just because the standard deduction was higher last year, it will be this year.

This isn't just my opinion. According to this report, IRS is estimating that people are paying a billion dollars too much in income taxes each year just because they are using the standard deductions when itemized would be higher. As with any IRS estimation, this is probably far too low.

Most people think that I'm such a stickler for good bookkeeping just because of my typical CPA anal personality. While that may be partly true, it's really for the best interest of the clients. Far too many just don't do a good job keeping track of what they receive and spend. Whether someone has a business or not, a good bookkeeping system, such as my favorite, QuickBooks, is essential. Every transaction in every account must be entered.

KMK
- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 4/30/2002 12:49:00 PM Send this post: