It’s right there on most every store receipt, pay stub and monthly mortgage statement: a notice of how much of your money went toward taxes. America’s complex, multitiered tax system means that handing over money to the government is perpetually in your face and on your mind, and never more so than as Tax Day approaches each spring.
But do taxes have an outsize grip on our imaginations? After all, can you really do much about them? (Spoiler: In most cases, no — as Benjamin Franklin hinted 200-plus years ago.) “I think people either obsess about taxes or they ignore them completely,” says Sallie Mullins Thompson, a CPA who works in the New York City area.
Thoughtful tax planning and a careful accounting of what you owe every year are crucial parts of overall money management. But beyond that, perhaps you should simply not worry quite so much about taxes. As these 10 truths about taxes illustrate, the right way to think about them comes down to keeping them in perspective.
1. You may fret about taxes more than you should
Your ability to control your tax bill is more limited than you may think. Take income taxes: You may earn money in various ways — perhaps from a job, a side gig or investments — but the taxes you pay on each are defined by hard-and-fast rules.
“Everyone is afraid of missing a silver bullet that will reduce their taxes. For most people, those don’t exist,” says Tim Steffen, director of tax planning at the financial services company Baird. If you’re a middle-class homeowner without squads of lawyers, you pay many types of taxes — sales, income, property, “sin” and beyond. You have the most leeway over your property tax bill. The rest are mostly out of your control.
2. … and, no, the IRS isn’t out to get you.
The agency is beset by problems: delays in processing returns, not enough staff to answer the phone and insufficient funding to conduct audits. That last part means you’re less likely than ever to face an audit; fewer than half a percent of returns were audited in 2020.
And any challenge will probably come in the form of a letter, not by IRS agents knocking at your door in suits and sunglasses. “People forget that when the IRS talks about audits, that’s a very broad term,” observes Mark Luscombe, federal principal analyst for Wolters Kluwer Tax & Accounting.
Often the IRS simply needs more documentation. (Send it.) If you get a notice from the IRS claiming you made a mistake on your return, you can challenge it. Any letter will have instructions on handling disputes. Sometimes the IRS may even find an error that goes in your favor and delivers a bigger refund than you expected.