Halloween is a time for children to enjoy haunted houses, ghosts, and goblins. This is fun. But there are some things left to adults that can be very scary and not at all fun. They don’t come in costumes ... they aren’t sweet candy ... and they can send shivers down your spine.
Here are 4 tax-related things of which to be frightened.
The tax laws
Steve Forbes said: “The tax code is a monstrosity and there’s only one thing to do with it. Scrap it, kill it, drive a stake through its heart, bury it and hope it never rises again to terrorize the American people.”
Unfortunately, “tax reform” is a term that never seems to be realized. I’ve lived through multiple tax reform acts, tax code revisions and overhauls, and various tax simplification laws. The monster still lives.
The tax bill
Lord Dewar (Scottish whiskey distiller) said: “The only thing that hurts more than paying an income tax is not having to pay an income tax.”
If you’re successful, you face a big annual tax bill from a variety of federal and state taxes. This is not only from federal (and where applicable, state) income taxes, but also from FICA or self-employment tax as well as the additional Medicare taxes on earned income and net investment income. And then there’s sales tax and local property tax. It doesn’t look like the size of the tax bill will diminish any time soon, and could be increased under a new Congress and/or your state.
A letter from the IRS
Jay Leno said: “Worried about an IRS audit? Avoid what’s called a red flag. That’s something the IRS always looks for. For example, say you have some money left in your bank account after paying taxes. That’s a red flag.”
This may be a joke, but getting a letter from the IRS isn’t. Just seeing the envelop can send chills down your spin.
If you receive such a letter, don’t panic. In most cases, the questions posed in the letter can be easily addressed (e.g., a missing form or an entry on a tax return that doesn’t match up with a W-2 or 1099). If you have any serious concerns, discuss them with your CPA or a tax attorney.
Possible tax changes
Will Rogers said: “Never blame a legislative body for not doing something. When they do nothing, they don’t hurt anybody. When they do something is when they become dangerous.”
The unknown is always scary. The unknown about tax changes is downright frightening.
What is known is that there will be tax changes sooner (perhaps impacting 2019 taxes) or later (for 2020 and beyond); such changes regularly occur. Some may be favorable, providing incentives for your business. Others may be punitive and discourage certain actions. Take the fear out of new tax rules by working with a good CPA or other tax advisor.
U.S. taxes may be terrifying, but they could be scarier. Consider that prior to the Tax Cuts and Jobs Act, the top federal income tax rate on individuals was 39.6%; now it’s 37%. The top rate used to run as high as 70%, although for a little more than a year it was only 28%. The Tax Foundation has a list of all tax rates since 1913, the start of the federal income tax. Things could be scarier.