Does Anyone Actually Understand Taxes?

“The hardest thing in the world to understand is the income tax.”      — Albert Einstein

I’ve come to conclusion that there are maybe five people who understand taxes.

I’ve been reading the stories about people who are having sticker shock when doing their taxes this year. Many people who have traditionally received large refunds have been getting a nasty surprise this year:  their refund is much lower or they owe extra money.

There’s a lot of finger pointing about people who should have adjusted their withholding to off-set this, or the perceived foolishness of loaning the government money and then acting like it’s a big gift to get your own money back at the end of the tax year.

All this aside,  my question is: why is it so hard to figure out in the first place?  Many people start a new job and stare blankly at their withholding documents trying to figure out how many deductions to take.  Sure, there are calculators, but for most of us, it seems like they only way we know if we are withholding enough is to wait until we do our taxes. And if we aren’t, it’s too late.

I generally try to keep my withholding at a place where I’ll pay a little bit at the end of the year because I don’t like to loan the government interest-free money.  But that’s just me,  I could easily make an argument for a forced savings approach of getting a large return instead.

For years I had my withholding at the same level, and my income was about the same, yet one year I’d get a small refund, and the next I’d owe some money.   Even more confusingly, one year I’d owe the state but get a refund from the feds, and the next year it would reverse. Everything was basically the same, so it never made sense to me why it see sawed back and forth.  Maybe I just haven’t tried hard enough to understand it, but mostly it’s seemed like a bit of a crap shoot to me.

I know I’m not alone here, and based on the number of people who’ve been shocked this year that their withholding isn’t high enough, I think a lot of people are wondering if there’s a better way to predict your appropriate withholding amounts.

I’m sure tax professionals can tell you that. And the people who write the tax code.  Or at least I assume these folks can.  It may be that they’re just as confused as the rest of us and don’t want to admit it.

If you ask google how to determine your withholding, you get a bunch of complicated worksheets and charts and long explanations.  Same for the IRS website.  As I researched for this post, I’d hoped to tell you, and me, a better way to figure out our withholding. Some simple thing we were missing. But honestly, if Einstein thought this stuff was hard, what chance do regular people like you and me have?

As much as I like to do a “how to” post, this isn’t one of them.   Instead I leave you with this quote from Dave Barry:   “It’s income tax time again, Americans: time to gather up those receipts, get out those tax forms, sharpen up that pencil, and stab yourself in the aorta.”

Good luck with your taxes my friends.

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  One thought on “Does Anyone Actually Understand Taxes?

  1. February 17, 2019 at 11:26 am

    So appreciative that the Australian tax system is much easier to understand!

    Like

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