Accounting on Us
Why you should love doing your taxes
Your tax money is actually doing some good
Donna H. Laubscher, CPA
Now, I love doing taxes, at least preparing and working on the compliance piece of the tax returns for my clients. And I am pretty sure that they love me preparing them, though they may forget to mention that to me if they owe money.
After a large chunk of your hard-earned money goes to Uncle Sam, you might be feeling a bit cheated. The payment of tax is inevitable, but how does that tax money actually get spent? Where does it go?
If you Google that very question, the answer that comes up is technology and education, which made me laugh, as the IRS is not exactly known for its most up to date computer hardware and software.
All U.S. government spending can be divided into three categories: mandatory spending, discretionary spending and interest on federal debt.
The biggest percentage of tax dollars is spent on health programs, such as Medicare and Medicaid, earned income credit and Social Security payments, all of which are considered mandatory spending. In the discretionary spending category, it is generally broken down between defense (Homeland Security, State Department) and non-defense (Veterans, Education). Then, because the U.S. spends more than it raises in revenue, the interest on federal debt must be paid.
As I am sure you are aware, your tax money is pooled with all the other tax money. It is not as if your specific dollars can be allocated specifically to one program over another. In other words, you can’t say you would rather a greater percentage of your tax money be spent on Education, rather than Homeland Security. That’s just not how it works. Every year the president submits a budget, which is then approved by both the House and the Senate.
That budget has your tax revenue in it, whether you file your tax return in February or in October on extension. When you file has no bearing on the budget, since the amount of tax revenue has already been estimated.
What about state and local taxes? Well, we can help with filing these as well. Many items in Arizona are subject to a transaction privilege tax (TPT which is frequently referred to as sales tax). These are taxes you pay when you purchase items, either in a brick and mortar store or online. The vendor submits these taxes to the State of Arizona monthly (generally). While we may assist some business owners with the payment of taxes and the completion of these forms, the consumer does not need any interaction with a CPA for their piece of this.
There are also income taxes at the state level. Not all states are the same, have the same looking forms, or even compute taxable income in the same manner. Since each state has its own law-making bodies who make tax laws, these are not the same from state to state. Arizona, for example, is commonly referred to as an AGI state. This means that the starting place for your Arizona taxable income is the adjusted gross income (AGI) from the federal return. After your federal return is completed, your state return(s) can be completed.
In addition to receiving sales taxes and income taxes, the state and local governments also receive money from the federal government.
If you Google what Arizona spends its tax money on, the biggest chunks of the pie appear to go to health care and education. It made some news last year when Arizona was estimating a budget surplus for the next fiscal year. So, Arizona does not have that interest portion on debt to pay, unlike the federal government.
Besides the inevitability of tax, there are some things you can do to ease some of the pain points. If you are self-employed, or do not have withholding from either a pension or wages, then you may want to consider making estimated tax payments. We frequently call these quarterly payments, even though it’s not really quarterly since its due April 15, June 15, September 15 and January 15 of the year following the year in question. For example, payments were due January 15, 2020 for the final fourth quarter payment for 2019.
Consulting with your tax adviser at times other than during compliance season may also reduce your tax payments. While we perform consulting for our tax clients throughout the year, November and December seem to be the most common times for consulting work. We have found that in order to be a good consultant, you must understand the compliance piece – so these go hand in hand.
If you do need (or want) to extend your tax return, know that an extension to file your tax return is not an extension of time to pay; the payment must be made with your extension and paid on April 15th. How, you may ask, do you know how much to pay if you are extending the return? Well, your tax adviser can assist with the items that may be missing on your return. Or the items that you may have only received estimates on, such as Forms K-1 you are waiting to receive.
Will this government lesson and tax explanation lessen the pain or increase the love you feel for filing your tax returns? Most likely not, but sometimes an understanding is all you can ask to receive!
We want to share the love. If you have any questions, reach out to your friendly Henry+Horne CPA.
Donna H. Laubscher, CPA, Partner, specializes in tax planning and consulting for individuals. She can be reached at DonnaL@hhcpa.com or (480) 483-1170.