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Tax Complexity Leads to Confusion for Taxpayers

By: Alicia Hansen

Today’s Wall street Journal contains an article titled “Piercing Some Common Tax Myths” that may be helpful to confused taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. payers trying to decipher the labyrinthine tax code between now and April 15:

Just when you think you’ve finally figured out your taxes, count on Congress to tweak the rules.

Keeping up with rapidly changing tax laws, phase-ins, phase-outs, regulations, revenue rulings and court decisions can be daunting even for veteran tax pros. Consider: The 2008 edition of CCH’s comprehensive federal tax-law service contained more than 67,500 pages, up from 40,500 pages in 1995.

“A lot of the tax law is really quite hard—and it can also be very counterintuitive,” says Mel Schwarz, a partner and director of tax legislative affairs at Grant Thornton LLP in Washington.

Small wonder that many tax myths and misperceptions have sprung up, as indicated in a recent survey by Harris Interactive for CCH CompleteTax, an online tax-preparation and electronic filing service. Among the fallacies: State sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. es can no longer be deducted, and home sellers can take a capital-loss write-off when they sell their home at a loss.

The article goes on to answer some common questions about refunds, capital gains and losses on home sales, and economic-stimulus payments.

It’s no wonder so many taxpayers need this kind of advice. In addition to the poll mentioned above, the Tax Foundation’s 2007 Annual Survey of U.S. Attitudes on Taxes and Wealth, conducted by Harris Interactive, found that 83 percent of respondents think the tax code is “very” or “somewhat” complex. In addition, over three-quarters believe the federal tax system needs “major changes” or “a complete overhaul.”

Given the rapid growth in the size (see chart) and complexity of the tax code, it’s not surprising so many Americans turn to tax professionals every April.