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The Internal Revenue Service is up front about the hassles of filing your annual tax return. In the instructions for Form 1040, the tax agency breaks out its estimates of taxpayer filing burden.
According to the IRS, it takes the average taxpayer 13 hours to fulfill his or her annual filing responsibility. That covers filling out the forms, records keeping, tax planning and other miscellaneous tax tasks.
Now the Tax Foundation has taken a macro look at the compliance costs of IRS regulations.
Billions of hours and dollars
The Washington, D.C.-based tax policy think tank says Americans will spend more than 8.9 billion hours complying with IRS tax filing requirements in 2016. And those hours will cost the U.S. economy $409 billion this year, says the Tax Foundation.
While the ever-growing tax code is a major factor, an equally annoying problem is the amount of regulations the IRS issues in connection with those tax laws.
“The tax statutes passed by Congress are only the tip of the iceberg when it comes to tax complexity,” says Tax Foundation President Scott Hodge in the report. “There are roughly 7.7 million words of tax regulations, promulgated by the IRS over the last century, which clarify how the U.S. tax statutes work in practice. On top of that, there are almost 60,000 pages of tax-related case law, which are indispensable for accountants and tax lawyers trying to figure out how much their clients actually owe.”
Or, as the old Capitol Hill saying goes, the tax code is the ultimate “keep tax professionals employed” law.
A big business burden
The Tax Foundation study, using data from the Office of Information and Regulatory Affairs and the Bureau of Labor Statistics, calculated the productivity costs of IRS paperwork.
Topping the list of 50 forms is the business income tax return.
Companies spend 2.8 billion hours completing their tax forms at a total annual cost of more than $147 billion.
Individual taxpayers burdened, too
We individual taxpayers are close behind. Filing of individual tax returns takes more than 2.6 billion hours, coming to a dollar cost of $98.7 billion.
Rounding out the top 5 most costly tax filings are tax returns for an S corporation, Form 4562 to claim depreciation and amortization (personal aside: the first time I filed this form in pre-software days, I got so frustrated I cried) and employers’ quarterly federal tax returns.
Also in the top 10 are filings for estates and trusts and Schedule C, which is filed by entrepreneurs operating their own businesses.
Time is tax money
“Time is the most valuable thing we have, and we should not be forced to waste it complying with IRS forms,” says Hodge, who encourages Congress to keep the Tax Foundation findings in mind when considering tax reform.
Do you feel overwhelmed when you do your taxes? How long does the process take? Or do you hand your tax duties over to a professional?
Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York. He provides guidance and strategies to improve clients’ financial well-being.