Flat as a Pancake!

A little over two years ago, I wrote a post discussing some of the complexities involved should Congress decide to enact a "flat tax" on incomes. I'd like to briefly discuss another popular notion, that a flat tax would put CPA's (at least the ones who do taxes) out of work.

Let me start by saying that I spend far less than 1% of my time calculating a person or business' tax amount. Really, there are only six brackets for individuals now, and our computers can handle the calculations that any eighth-grade algebra student could do by hand. If Congress were to simply change the Tax Code ("the Code") to have one flat rate, my job really wouldn't change.

Now suppose that Congress feels that the Code is too complex. Perhaps there are too many deductions and credits available. Eliminating many of these might instill more confidence in a greater number of individual taxpayers, and allow more people to prepare tax returns on their own.

Another possibility that could go hand-in-hand with this is that Congress could try to tax all income the same way. They could tax wages, salaries, interest, dividends, and capital gains all at the same rate.

If the above two things were to happen in concert, I admit that our firm would probably have quite a bit less to do. Still, one reason dividends are taxed at a lower rate is because that income has already been taxed at the corporate level. Having lower tax rates on long-term capital gains encourages investment, which fuels our economy. It would be difficult to change these policies now.

The area I spend most of my time on now is business taxes, though. And whether those businesses are sole proprietorships, LLC's, or corporations, they all file a tax return that requires most of our time as tax CPA's to determine what taxable income is.

By the way, the Form 990, used for tax exempt entities is the longest and most complex IRS tax form I prepare. I have spent up to 30 hours preparing a form on which no tax is due, even if the company was "profitable".

I know what you're thinking! Oh, how we'll all laugh when Derek is unemployed since he sounds so overconfident now. You may be right. Congress could decide to tax something other than incomes! But hey, there's always general ledger accounting, cost accounting, or even auditing!