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Every few decades or more often our federal tax system has a major upheaval. After I got my accounting degree in 1977 my first two jobs were working in state government auditing focused on matters internal to the function of the government. I still feel I learned a lot during those jobs but it was not a good fit for me.
In the early 1980’s I entered the world of public accounting which to a large extent is broken into two segments.
The first segment is a focus on attestation of financial statements with the level of services from the highest level downward being audit, review and compilation. The CPA firm issues an opinion on financial statements attestation work which requires practicing in a licensed CPA firm by individuals with required education that have passed appropriate exams, had appropriate experience and who continue to obtain sufficient and targeted continuing education. The primary purpose of CPA’s in the attestation function is to serve the public by allowing limited reliance on financial statements which are the responsibility of the management of the issuer of the financial statements upon which the CPA firm opines.
The second segment is a focus on tax. Tax work requires a CPA or non CPA to follow the law and rules created by federal and state governments but the work is focused on helping business and individuals meet their objectives of tax compliance, planning and minimizing both tax paid and the cost of the tax work. A CPA license is not necessary for most tax work with the main exception being representation of third parties before the governments and in some legal matters.
We are now at a point in time where the Tax Cuts and Jobs Act (TCJA) of 2017 are set to expire Dec. 31, 2025. I think that many of the complexities created in the TCJA should be addressed as the federal tax laws and rules will change but my hope is that more complexity is not added.
The Bloomberg government reporter has a good summary of what is changing in business, international and individual taxes at the end of 2025 if nothing is done.
https://about.bgov.com/insights/elections/2025-tax-policy-crossroads-what-will-happen-when-the-tcja-expires/#which-tcja-individual-tax-provisions-are-set-to-expire
My major worry about taxes is that unneeded complexity of our tax system could cause system failure. We can and must do better.
Toss the estate tax or just have it kick in at like a billion. It makes it enormously hard to pass a successful family business on which is why Berkshire Hathaway has had so many family businesses sell to it.
Yes, tax the working stiffs for everything they actually EARNED through HARD work.
But the lazy trustafarians, who get everything handed to them, who never worked a day in their life, who spend their time crying their eyes out that their yachts are 10′ shorter than they want —
Go ahead and shovel even more $$Billions into their pockets. Because why have a decent society when you can go back 800 years and have feudalism?
I agree with your concern but I have a cynical view of any effort to “simplify” the tax code. Every time this is done, many more pages are added to the tax code, and it becomes increasingly more complex.
One of my accounting professors jokingly referred to tax simplification efforts as the tax accountants relief act of year xxxx. There was a lot of truth in that.
This past tax filing I was looking for clarification in completing Form 1040, line 4a “IRA distribution” and 4b “Taxable amount”. Our IRA distribution consisted of non-taxed funds rolled over into our Thrift Savings Plan (similar to a 401k) for civil servants, proceeded by converting the non-deductible funds into our Roth accounts. I carefully read the instructions that address these two lines. The instructions were fairly clear, but I still wasn’t 100% sure on the interpretation of the “Exceptions”. So, I called the IRS before the end of the tax year, thinking they shouldn’t be overwhelmed by tax filers with questions. Well, getting to talk to an agent was quite a challenge between having to wait over 45 minutes just to get to the section that handles these types of questions to being hung up on as I was being transferred. This happened more than once. So, I decided to check with AI ChatGPT and received a coherent and straight forward explanation, which was how I had interpreted the rules. I still pursued having a discussion with an IRS agent and I finally got a hold of one. All they did was read the instructions back to me, really not much help. So, I asked the person if they were familiar with AI ChatGPT and they said no and didn’t have much interest in it. As I hung up the phone I thought, this person may be out of a job whenever the IRS employs AI. I used TurboTax to complete our tax return and it handled the required inputs and outputs and even typed “ROLLOVER” next to line 4b as mentioned in the 1040 instructions.
After the IRS made an error on a clients CP notice, I had to explain to the IRS “agent” that qualified dividends were not taxed the same way as interest. The agent put me on hold while he checked the code, and then conceded the error.
You are making a valid point about AI taking over these jobs.
I can identify with the frustration of dealing with the URS, and SSA too, for that matter. Other than the waiting times, and the dropped calls, what I find most egregious is that you can take the information received from these agents of the government, act on that information, as directed, BUT if the information was incorrect or just plain wrong, YOU and not THEY, are held liable for their mistake.
Hopefully The TCJA will either be extended or made permanent and the nightmare you envision can be avoided.
Ever since I began doing Roth Conversions in 2020, I have hired a CPA to do my taxes. Prior to that, I had done my own for decades. Over the past 5 years the fee has risen from $250 to $500…but he is worth it. At least so far! Ha!
What I would like to find however is a CPA who actually knows, understands, and can provide retirement tax planning advice…not just do your taxes.
I have not been able find one, and I have been looking. Do they exist?
“My major worry about taxes is that unneeded complexity of our tax system could cause system failure.”
My major worry about taxes is that a lack of employees and brain drain at the IRS WILL cause system failure.
I think that is by design.
It is hard to not be concerned about both worries. I could have just as well picked your concern about loss of institutional knowledge and adequate number of employees as my major worry. Thanks for making your point.
Best, Bill
As I have posted before, when I lived in the UK it took me less than ten minutes to file my taxes. Not only was the system simpler, the government had already done most of the work. I was incredulous at the amount of work required to file taxes in the US. As far as I am concerned the system is ridiculously (and probably corruptly) complicated and should be completely replaced with something much simpler. I have no expectation that anything so sensible will happen.
There have been a number of efforts to simplify the tax code over the years. Steve Forbes, for example proposed “The Flat Tax.”
However, the US federal government uses the tax system for more than simply collecting taxes. Whether you support it or not, right wing or left wing, the fact is that wealth redistribution, social engineering, and punishing your political opponents are as much a part of the US Tax System as the actual levying and collecting of taxes.
Everyone thinks they are over taxed and the typical response is to “tax the rich.” The truth is, the vast majority of taxes are already paid by”the rich,” in one way or another. Another politically charged comment is “Make THEM (undefined) pay THEIR Fair Share.” And of course, no one knows who defines what the fair share is.
If there were no loop holes or specialized deductions, having your taxes prepared annually would be simple, since the IRS already has all the info they need to determine your tax liability. Apparently in the UK, that is why your tax preparation is so simple.
However, as with most things political, one person’s “tax simplification” is another persons loss of power to control the public.
To end on a lighter note, I remember when The Flat Tax was being discussed 10-15 years or more ago, there was a sample 1040 that was the size of a 5X8 inch postcard.
This was before “social media.” Someone created a form that looked like an official IRS document, as a joke, and it only had two lines on it.
Line one said, “How Much Money did you make in 19XX.”
Line two said, “Send it all in.”
Happy Investing!
Great comment. Thanks, Bill
Another thing that needs overhaul is our medical insurance and billing system. I’ve been waiting nearly 45 minutes simply to sign in and give my insurance info for a simple blood draw that will take less than five minutes. And this in my tiny town. About half a dozen people ahead of me, presumably for the same thing because they are coming out to leave much faster than they are going in.
My youngest lived a short time in New Zealand and as I recall they were more like the UK system but I think NZ went to a simpler tax structure when their previous US like tax system wasn’t working for their government or citizens. That was over a decade ago and I have prepared one NZ return in my life and it was more of a compliance type return with my biggest headaches being currency conversions and reading a lot about the NZ return requirements and I was preparing it for free.
William. Thanks for the link. It will be very interesting to see what happens this year. I don’t expect any simplification. I hope it doesn’t get worse.
+1. Thanks Rick
Keep the standard deduction. We are so happy we don’t have to itemize anymore. Chris
I think that continuing the higher standard deduction may be a common point of agreement. I expect the business and international provisions will be the key matters bogging down the process and result in uncertainty for all.
Keep the standard deduction.
Toss the estate tax threshold, reduced middle and upper class tax rates. Maybe toss the salt cap, but I think that’s kind of irrelevant tbh.
I agree with your thinking about the keeping the higher standard deduction and I would also kill the federal estate tax like most states have gotten rid of most inheritance and estate taxes.
The state or local tax tax (SALT) deduction can only be used by the approximate 10% of filers who still itemized. Should there be a cap on SALT of $10K while currently cash contributions are limited to 60% of adjusted gross income (AGI) but charitable contributions of long term appreciated assets are capped at 30% of AGI.
I would favor a simpler tax regime where what you earn is taxable and what it takes to make that income is deductible. I would like to see everyone being treated in a similar manner for the same type of income, deductions and limitations – think employer provided health insurance for an employee vs self employed vs retiree vs Medicaid insured. How about one limit for retirement contributions regardless of the type of plan you have? I am likely preaching to the choir this rant of mine.
Regarding business returns how about one business return regardless of your type of entity instead of different tax returns for LLC & S-corporations pass through entities, C-Corps, Trusts and on and on. Special interests would not be happy.
Thanks as always for your thoughts on taxes, William. Am I correct in thinking that charitable contributions are currently capped at 60% of AGI and that half of that amount could be from appreciated assets, and half from cash? And that QCDs could be in addition to the 60%, up to the maximum allowed annually?
My understanding-
Qualified charitable distributions (QCDs) act as an exclusion from taxable income rather than an itemized deduction. Typically a QCD you make is not part of your adjusted gross income(AGI). There are limitations on excluding such distributions if you continue to make traditional IRA contributions beginning for tax years you are 70 1/2 or older.
When making a QCD you end up with a smaller taxable income compared with the alternative of taking the IRA distribution and then making a charitable contribution. Making a QCD vs the alternative may also impact other income items such as the taxable amount of your social benefits or for higher income returns QCDs may keep your current income from crossing over a social security income related monthly adjustment amount (IRMAA) threshold which could increase the Medicare premium surcharge in two year (example 2024 tax year AGI could result in a 2026 IRMAA surcharge).
If you are itemizing think of the 60% cash contribution limitation being the base of the stack and the 30% limitation on contributed long term appreciated investments being the the next layer. If you have unused charitable contributions on a return there typically is a 5 year carry forward of the excess above the limitations.
This is one of many areas of the tax code with lots of complication and matters not addressed here. There are other deductible charitable limitations besides the 60% and 30%. Tax software is usually good in determining charitable deduction limitations assuming your tax data is correctly input. IRS Pub 526 has a lot of good information if you are willing to wade through it.
For many of us age 70 1/2+ QCDs are the best option tax wise to make our 2025 charitable contributions if we use the standard deduction which about 90% of returns currently use and we are not subject to one of the gotchas in our not simple tax code and rules. I certainly do not know what the tax rules will be starting in 2026 and I do not think anyone else does either.
William…I began RMDs in 2020, and from the beginning I have used my RMDs as LCDs.
Your explanation is accurate.
The RMDs taken as QCDs are NOT included in income.
On my 2024 1040…
Line 4a says IRS Distributions
Line 4b says Taxable Amount. The letters QCD are entered there, and not a number
Under the column on the right where all the numbers go, Line 4b says 0.
Thanks for the thoughtful and thorough answers. Am itemizing, so will compare the tax consequences of QCDs versus appreciated asset donation when the time comes. And of course, let’s wait and see what the new tax bill brings.
In 2024 the Household median US income was just under $81,000.
If the standard deduction is large enough the majority of households shouldn’t even have to file a tax return.
Of course the big tax filing companies would lose a lot of business.
Agree and agree.
Thanks, Bill