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Yes, this is what I said - taxes are simple!

Summary First

  1. Taxes are simple. The IRS and accountants make taxes look more complicated than they are.
  2. In many cases, you can handle your taxes yourself, with a very modest effort on your part.
  3. Grasping the basics can save you lots of money, time, and headaches. Sadly, the IRS publications and "consumer" tax books are of little help.
  4. Some tax situations can be complex and warrant professional help. I'll give you few examples.

I maintain that the basics of federal taxation are quite simple. And "basics" is the key word here. The good news is that, for 3 out of 4 Americans, the "basics" is all they really need to know. Besides, without a firm grasp on the basics, some advanced tax ideas can actually do more harm than good.

Now, a few words about "complex." Yes, the tax laws are incredibly complex, and it's getting worse every year. We've got special treatment for disabled and for students, for homeowners and for self-employed, investors and elderly - all in the name of fairness. Hunting for the tax breaks (also known as deductions and credits) creates a lot of headaches for the taxpayers and revenue for the accountants. Since the IRS needs to verify our claims, we have to deal with the possibility of an IRS audit. In turn, audits require massive expansions of the IRS staff and budgets - all paid through additional taxes, of course!

To make things worse, politicians learned that new tax breaks can win them votes. Besides, they want more breaks for themselves too! So, here we are in the 21st century: totally confused by the tax law, overpaying our taxes, overpaying accountants (yes, I'm one of them) to fill out the stacks of forms, wasting time and money, arguing about fairness, and still paying the government to maintain and worsen the whole mess. Nice job!

The good news is that most people do not really need a lot of tax knowledge. Look at any of the IRS booklets or how-to-save-on-taxes reference books.

Do you find these tax tips relevant? See, this is exactly the problem with all those "helpful" publications. They are overloaded with useless technical details and fail to explain the simple ideas and rules.

I like an analogy with car maintenance. One extreme is the people who always fill up at "full service" stations and never look under the hood. There is nothing wrong with it. In fact, those folks manage to keep their hands clean from dirt and their minds clean from auto blues. Bit it costs them money, and they should be careful not to leave the city limits. Another extreme is hardcore do-it-yourselfers who spend entire weekends in their garages. Sure, they save money, but at what cost?

As always, the challenge is to find the right balance. Only you can decide how much time you want to spend learning about your car and servicing it yourself rather than paying someone else to do it for you. Only you can decide how much (or how little) you want to know about taxes to be comfortable with them. If you're looking for some common-sense information to get you started, this site is the place. Enjoy!

Tax complications

There are many situations when basic understanding of taxes is not enough. If any of the following applies to you, I'd recommend that you consult a tax professional.