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How much do I owe? Tax code complexity makes it hard to answer

Taxes involve a complicated social dance between government commitments to citizens and placing burdens on private activities, Decades ago, Justice Holmes famously called taxes the price we pay for a civilized society. More recently, many people have tried to tar them with a much more bitter brush and cut them wherever possible.

Leaving policy considerations aside, however, taxes, on a very basic level, are about money. Both individuals and businesses want to know how much they are likely to owe so that they can plan accordingly.

But the sheer complexity and constant changes in tax codes make this increasingly difficult to do. In Southern California and across the country, taxpayers of all types can be left wondering about tax compliance steps they should take

To be sure, the specific questions vary from taxpayer to taxpayer. They could include such questions as:
• Did I withhold enough?
• Did I make the right estimated tax payments?
• Does the alternative minimum tax (AMT) apply to me?
• Does the “nanny” (household employer) tax apply to me?
• Are there really two tax filing deadlines – one in April, for income taxes and another, in June, for foreign accounts?

This list could go on and on. The point is that even the most sophisticated taxpayers sometimes struggle to understand where they stand on taxes. And virtually any taxpayer can become involved in a tax controversy with the IRS or a state revenue agency.

Estimated taxes, in particular, are an increasingly difficult challenge for many taxpayers. And with more people working as consultants or contractors rather than employees, more and more people are facing the requirement to make estimated payments.

We will be sure to make estimate taxes the topic of an upcoming post.

Source: The New York Times, "A Guessing Game for Taxpayers on What They Owe," Paul Sullivan, August 23, 2013

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