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I Can No Longer Do My Own Taxes April 15, 2009

Posted by federalist in Taxation.
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I have a Yale degree in Computer Science and Math, magna cum laude, and I worked for the government for several years.  I have always tried to do my own taxes because:

  1. I enjoy tax optimization, and I need to fully understand the tax system in order to minimize taxes.
  2. I believe I am as capable as an average accountant at reading and understanding the tax regulations.
  3. I want to know when the government has made strict tax compliance impossible even for someone with an above-average technical education.

Granted, the tax code has not experienced any quantum leaps in convolution in the last few years.  It certainly does increase in complexity each year, but what pushed me over the edge were new complications in my own financial circumstances that took me deeper into the uncharted and poorly illuminated niches of existing tax regulations.

I spent days poring over my taxes this year.  As is my custom I began with TurboTax to flesh out the bulk of my returns, and then began digging into specific forms and publications to understand and verify what was going on.  I was alarmed early on to discover that TurboTax had failed to optimally incorporate information pertaining to a home office deduction — and then to discover that it had made the same error last year!  I saved a few thousand dollars right there.  But after many more hours of trying to place gains and losses associated with alternative investments I concluded that it is simply impossible to confirm the correct way to assess those taxes.  So this year I will begin to pay an accountant to review my returns.  And I present myself as evidence that the United States government imposes tax laws upon its citizens with which reasonably competent men cannot with certainty comply.

Incidentally, I don’t believe that accountants have any special powers of discernment when it comes to tax law compliance.  I have often reviewed the professionally-prepared tax returns of family and friends in order to offer them better financial advice.  And I have frequently noticed that in gray areas of uncertainty professional accountants typically take liberties and shortcuts for the benefit of their clients that do not strictly square with the letter of the law.  I have concluded that the law as written is so impenetrable (see “Lazy Law“) that extra-legal customs have evolved, generally respected by both accountants and the IRS, to prevent the  business of filing and processing taxes from grinding to a halt.  An outsider like me is not privy to these customs and so the government forces me to choose to either:

  1. Pay an accountant to lead me through the unwritten law.
  2. Do my taxes conservatively and probably pay the government more than I rightly owe.
  3. Do my taxes liberally and risk violating the unwritten laws and consequently being forced to pay additional fines for my daring.
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Comments»

1. federalist - April 19, 2009
2. federalist - April 21, 2009

Two years ago I made a case for tax simplification.

Don Peters, in a letter to the WSJ, has a more salient proposal for making that happen:

Congress should require each senator and representative to prepare his or her federal income tax return personally and should require the IRS to audit 100% of those returns each year. Instantly, a “special interest” would develop for simplification.


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