Written by: Ceinwyn Rudnick, Executive Contributor
Executive Contributors at Brainz Magazine are handpicked and invited to contribute because of their knowledge and valuable insight within their area of expertise.
It is the middle of February of 2019, and tax season is really starting to pick up steam. I have a great head start on our business client’s returns, and we have just started processing individual clients. First one client, then another, and another brings in a stack of charitable giving and purchase receipts with their mortgage statements. Just like every other year, right?
Except it wasn’t.
Due to the Tax Cuts and Jobs Act, the personal exemption disappeared, and the standard deduction more than doubled. To make use of all those receipts and trips to Goodwill, my married clients now had to rack up more than $20,000 in itemized expenses. For most people, the bulk of this expense has always come in the form of mortgage interest. However, even with an insane real estate market, most people aren’t paying more than $12,000 a year in mortgage interest. Well, unless you decided to stick it out in California, in which case, a Schedule A is the least of your tax concerns.
Point being-the way of filing taxes that people were used to for many years was suddenly dead. I spent a lot of time that year explaining why.
US tax law, to put it bluntly, is the strings that make all of us dance.
During COVID, huge bills with unprecedented price tags were argued over for months while the rest of the nation tried to just hang on. There were a couple of stimulus payments. People were generally less than impressed.
But what you may just be finding out now that it is tax season? Those payments-you must reconcile them on your tax return. But why?
A tax return is a vehicle for information and also social behavior influence. With the advance payments of the EIP (stimulus payments), the IRS will get back a plethora of info on who did and did not get an EIP and who qualified, and who may still need a portion of their stimulus payment. However, this means there is yet another worksheet to fill out on this year’s taxes and another line on a return the system tried (and failed) to reduce to one page.
Congress passes laws to encourage various behaviors, from purchasing large ticket items such as trucks and equipment to supporting charitable contributions, and they plug all these social engineering projects into the tax return. To be fair, it is a pretty universally utilized system in our country, and almost everyone files a tax return. However, this makes the system and the forms ever more complex as new laws are passed with each switch in a political party.
I often say that the system can either continue trying to be “fair,” or it can be simple. Fair is determined by Congress continually passing different laws to appease different groups of people from businesses to married couples with kids. This attempt conflicts with simplicity, though, because each attempt at fairness requires more paperwork to reconcile. Simple takes away the complicated math and worksheets but removes rules that benefit many groups of people.
I guess we can’t have our cake and eat it too.
Ceinwyn Rudnick, Executive Contributor Brainz Magazine
Ceinwyn Rudnick is an Enrolled Agent and Certified Tax Coach based in the Pacific Northwest. She opened her boutique accounting firm, Veritas Accounting Solutions PLLC, to help business owners realize the benefits of transitioning their accounting services to the cloud. Recently she has completed advanced training through the AICTP to become a Certified Tax Coach-making tax planning, a leading service offered by Veritas Accounting Solutions PLLC. Ceinwyn has two degrees, a B.A. in English Education as well as a B.S. in Accounting. She loves helping her clients achieve a better understanding of the role accounting, money, and taxes play in their business. Her goal is to guide business owners to a place of peace and confidence regarding their taxes and finances through education and customized tax planning.
