Each year, the average American doing her own taxes spends 13 hours just on pretax planning, gathering records and such -- and that's before filling out the first line of her tax return. That adds up to about 6 billion hours being wasted annually, and it's one of the many reasons why U.S. Rep. Dave Camp (R-Mich), chairman of the House Ways and Means Committee, and Sen. Max Baucus (D-Mont.), the chairman of the Senate Finance Committee, came together Thursday to launch a new online platform where people can suggest the changes they want to see in the tax code.
Through TaxReform.gov, the congressmen hope to start a discussion between lawmakers and everyday folks about the difficulties they have with the system, and use their suggestions to devise a modern new tax code. Previous attempts to modify the tax code have only added more layers of complexity to it, as well as building in loopholes that allow corporations and the wealthy to evade taxes.
Because of their roles as the heads of the two congressional committees that germinate tax law, any genuine change in the tax code will start with (or at the very least, near) Baucus and Camp, and they want the public to help them make it happen. "We are dedicated to writing bills in an open and transparent fashion. No cutting deals behind closed doors," they state on their website.
A perfect tax system might be too ambitious a goal for the imperfect world of politics, but Baucus and Camp hope to simplify it and make it more fair for American families. If you'd like to help them, they're waiting for your input.
The 10 Biggest Things Your Income Taxes Pay For
Congress' Tax Chiefs Want You to Help Make the Tax Code Simpler
Nearly 25 percent of all income taxes go to pay for defense. Of that amount, salaries and benefits for members of the armed services make up roughly a quarter, while most of the remainder goes toward equipment and supplies as well as weapons, construction, and research and development.
About 22.5 percent of income tax revenue goes toward health care programs. The two big expenditures are for Medicare and Medicaid, but additional amounts go toward health research, food safety, and public health services and disease control. These amounts don't include the dedicated Medicare taxes that workers have withheld from their pay.
The government spends roughly 17 percent of income tax revenue on various programs that provide money for those in need, including retirement benefits for federal employees, food and nutritional assistance, and Supplemental Security Income. The Earned Income Tax Credit and the Child Tax Credit are also funded from income tax revenue.
The national debt incurs a substantial amount of interest each year. Even at current low interest rates, about 8 percent of your income tax dollars go toward paying interest costs annually.
About 4.5 percent of spending goes to pay for various benefits for veterans. Income and housing support represent not quite half of the spending in this category, with health-care expenditures nearly as high. The remainder goes for education, training, and other benefits for former military personnel.
The majority of the 3.3 percent of income tax revenue spent on education and job training goes toward funding education through the high-school level. College financial aid, along with employment training for those with disabilities and more general job training and employment services for the broader public, take up the remainder.
Just over 2 percent of income tax revenue goes to support the nation's immigration and law enforcement programs. These expenses help fund the nation's court system, as well as federal law enforcement agencies and the federal service that implements U.S. immigration policy.
About 2 percent of revenue from income taxes is spent on various expenses related to the natural resources of the nation. About a third of that money goes toward water and land management, with the remainder funding environmental protection initiatives as well as management of the nation's energy assets and conservation efforts.
Money going toward international initiatives makes up about 1.7 percent of total income tax revenue. About half of that amount is spent on humanitarian and economic-development assistance, while the remainder is split among the costs of maintaining embassies and diplomatic missions, and providing security assistance overseas.
Just over 1 percent of income taxes go toward science-related programs. More than half of that amount goes to NASA, but additional recipients include the National Science Foundation as well as various national laboratories and other research facilities.
Cashing out or taking a loan on your 401(k) are two viable options if you're in need of funds. But, before you do so, here's a few things to know about the possible impacts on your taxes of an early withdrawal from your 401(k).
The IRS considers unemployment compensation to be taxable income—which you must report on your federal tax return. State unemployment divisions issue an IRS Form 1099-G to each individual who receives unemployment benefits during the year.
Say you happily filed your tax return by the end of February and were the envy of all your friends, but in June you realized you forgot to include income from last summer's freelance job. Don’t worry, all you need to do is file an amended return using Form 1040X.