I am doing taxes again this year, I love doing OTHER peoples tax returns. Each one is a puzzle but the puzzle comes with a prize (usually) if I get a refund for the customer. I've had customers hug me, thank me, try to give me tips, and generally it's a good time for anyone to get the annual tax thing over. I've also had people cry at my desk, have their eyes glaze over when they realize what they are having to pay, and sometimes it's not a good time for all.
I've also worked with people whom I am certain are lying to me. People who are trying to game the system, people who are not being totally truthful and some who are blatant fibbers. Why? because the tax code is so complicated, so convoluted, and so difficult to decipher, that many people know that they can get more money from the government by not declaring what they really should.
There are 5 filing statuses: Single, Married filing jointly, married filing separately, head of household, and widow(er). Single and married filing separately both get the same personal deduction amount and married filing jointly just gives 2 people the same deduction as 2 single people. Head of Household and Widower statuses require that the person with this status have children, and as such, the person with children gets a stepped up personal deduction than would a single person or a married person filing separately. Here's where all the problems begin.
Two people, living together, maybe married, maybe not, with children. Only one person in a household is allowed to file Head of Household and declare dependent children. What happens when 3 generations are living in a house? Often, more than one of the adults with children will file Head of Household in order to get more income deducted and often, to receive additional earned income credit that can net thousands of dollars in refundable cash to the working parent.
Here's an example:
Married couple, with 3 children living in their house. One of the children, age 19, has a child of her own. The correct way for this family to file is this: Married filing jointly, with either 4 dependents (their 3 children and the grandchild, if in fact all 4 lived with them all 12 months and all 4 depended on them for support) OR MFJ with only 2 dependent children, and with the one child who has her own child filing single along with 1 dependent child, if in fact this adult provided more than half her own support and also more than half the support of her dependent child.
What usually happens is this: Single man with no dependents; wife files as head of household (even though they are living together) with 2 dependent children; adult child also files as head of household with one dependent child.
The reason this family files this way is to maximize the filing status credit, which is higher for head of household, and also to maximize earned income credit payments to the children's parents.
It's a system that's unwieldy, difficult to understand and apply to the situation, and ripe for fraud. The IRS frequently sends letters out to Head of Household taxpayers asking for proof of household expenses, proof of the child's actual dependency, and proof of residency. Many people end up owing the IRS thousands of dollars of money that was refunded and paid out, but then disallowed later when the proper documentation could not be shown as proof.
The religious right believes that marriage is only between a woman and a man, and therefore our federal social security benefits and tax code should only allow MFJ status for one man + one woman. The groups demonstrating for homosexual, and individual rights, argue that marriage should be an individual choice, and our federal social security and tax laws should base individual rights on individuals, rather than religious teachings.
I have a better idea. Let's just simplify the tax code and make it 1 deduction for 1 person. That's it. No married filing jointly or separately, no head of household or qualifying widower, just 1 person, 1 deduction amount. That way, we don't have to ask, did you live with your spouse for the last 6 months of the tax year? Did anyone else live with you who is also filing head of household? Right there, it would simplify so much, tax-wise. It won't matter if you are married in the church, or married legally, or just living together, or even if you are of the same or different sex. One person, 1 deduction, 2 people living together, they file separately, with 1 deduction each. They can then split up all the deductible expenses, however they want. If 2 people are married, or living together, but only one is working, then that non-working person can be a dependent on the primary taxpayer's tax return. After all, they are supporting that person, yes?
If the government wants to credit more money for people with children, then they can beef up the child tax credit; the earned income credit is already there for people with children, but I wouldn't mind if more money went to people with children.
I used to feel strongly that married people should only be a man and a woman. In my older age, now, I am thinking more of the individual rights of our citizens. The United States of America was founded on the principle of individual rights, and I'm thinking that even though I personally wouldn't want to marry someone of my own sex, why should I be in favor of not allowing someone else to do it? After all, they aren't harming anyone, they aren't stopping me in my own 'pursuit of happiness'. Actually, the LAW is hampering these people of their own 'pursuit of happiness' and I don't think that's ethical, in light of our constitution.
Here's another conundrum: a married homosexual couple with children (homosexual marriage is legal in certain states) is required, by federal IRS law, to file thusly: 1 head of household with dependent children, + 1 single person. If a heterosexual married couple filed thusly in any state, today, that would be fraud, as a married couple living together CANNOT file separately legally, either as 2 singles or as 1 H of H + 1 single. They can file married filing separately, but they will lose many credits available to MFJ and to H of H. In effect, the IRS actually legally grants a homosexual couple a richer amount of deduction, simply BECAUSE their marriage is not recognized by the federal government. Hmmm. I wonder if all those homosexual married couples realize what they might lose if DOMA is struck down?
The IRS tax code is a monster of confundity; there are tax lawyers who make a living researching and deciphering details of the code. If you call the IRS, and ask one question multiple times, you will receive multiple answers. My suggestions could possibly simplify that code, and perhaps make life simpler for many people. Anybody out there agree with me?