We like to talk about taxes (mostly, I’d say, complain about taxes), but the truth is most Americans really just do not understand alot about taxes. I can think of no system that is so universally applicable and yet so misunderstood and under taught. Sure, the subject is politically charged, and everyone has an opinion on how much they should pay in taxes and on what that money should (or should not) be spent….but, how much do you really know about taxes? For example:
1. How much did you actually pay in taxes last year? And, into which tax bracket do you fall?
2. What is the difference between a tax credit and a deduction? Which one will save you more money?
3. What recent legislative changes are going to potentially save you money on your 2009 return?
4. Do you know how long you have to amend a return (i.e. go back in time to capture a tax credit or deduction you missed in a prior year)? For that matter, do you know how long the IRS has (by statute) to audit your past tax returns?
Well, if you do not know the answers to most of those questions, then you are not alone! Even Albert Einstein is known for saying, “The hardest thing in the world to understand is the income tax.” Taxes are complicated…in my opinion (which you will be hearing a great deal about), unnecessarily so!!
A 2009 survey conducted by The Tax Institute at H&R Block (link to press release) concluded “Americans are failing Taxes 101.” The survey found that of the 1,000 US adults they questioned, 78% did not know what tax bracket they fall into, 60% did not know that a tax credit saves the taxpayer more than a deduction, 70% were not aware of legislative changes, and 84% did not know they could go back three years to amend a prior tax return. (Oh, and the general rule on the statute of limitations for IRS audits is three years, but as with most of the tax code there are several exceptions and caveats to this “general rule.”)
Here’s the GOOD NEWS – this blog is going to talk about these matters (and many others). My hope is that I can help (perhaps just one taxpayer at a time) to ensure that American do not fail Taxes 101.