Tax-time thoughts: now with slightly less incompetent accounting!

I have survived, I think, another tax season as a self-employed individual, and I’m increasingly convinced that if I keep doing this I will someday know what I’m doing.

Misc. incomeOnce again, my worst enemy was my inattentive and sloppy accounting. I was still forgetting to tag some expenses as business transactions in Mint until last spring, and It took me until mid-September to lock in the habit of logging every cash expense within minutes of it happening. Memo to Google: This would be easier if the Google Drive app could edit spreadsheets offline.

For cash transactions not properly noted at the time, I had to recreate records months after the fact. That involved the tedious, time-consuming routine of cross-referencing my calendar, e-mail and Foursquare check-ins.

Importing the credit-card purchases that Mint had recorded automatically was the same as ever, which is not good: Intuit’s site still provides no way to limit a transaction search to a date range short of hand-editing a Web address. Intuit, this is idiotic. Try spending some of the money you sink into astroturfed lobbying into adding this most basic of features.

Last year also saw client income (Sulia and WordAds) arrive via PayPal deposits, a first for me. I liked the invoice-free convenience of those payments, but I made two rookie accounting mistakes. The big one was not identifying all of the subsequent PayPal transfers to my bank as freelance income; the little one was using some of a freelancing-inflated PayPal balance to reimburse my share of an Airbnb apartment rented for Mobile World Congress instead of first moving the sum of those freelance payments to my bank, then covering the lodging expense with a separate withdrawal from my bank.

The fact that I realized most of these errors in late March by itself represented my single biggest accounting failure–I spent too much of 2013 in a financial fog, which is stupid. So after cleaning up last year’s records, I set aside a couple of hours last weekend to do the same for those from the first quarter of this year. Like I said: I do learn, just not quickly.

Unsolicited tax-reform advice

Once again, my tax season ended in a fog of confusion and rage: I don’t know the math that determined my bill or the economic or political logic behind it.

But this time, the experience cost extra. With a more complex tax situation (the suggested math for the 1040ES approaches sadistic levels of inscrutability), I gave in and paid a tax pro to crunch the numbers for us. In the context of today’s tax code, that was money well spent, sparing me hours of poring over forms and the lingering anxiety over missing some hidden deduction or credit.

But today’s tax code is bullshit. It’s a national embarrassment–a self-inflicted wound that oozes a little more financial pus every year.

Its eye-glazing complexity wastes the time of most Americans while inviting the more entrepreneurial among us to find ways to game the system–then lobby Washington for more such opportunities.

I’ve been writing this same rant every spring for six years now–see the 2011201020092008 and 2007 versions–and nothing changes, despite vague promises of reform like those I got from Obama administration representatives last spring.

So I might as well throw out some suggestions to fix this mess.

1. Tax capital gains and dividends at the same rates as wages. Historical records suggest that giving investors this break doesn’t actually yield higher economic growth over time. Yet it works too well at encouraging accounting alchemy like the “carried interest” scam. Rewarding one form of economic activity also sets a lousy precedent: Why not lower taxes for doctors who save lives, among other estimable occupations? (For that matter, why not jack up the rates for hacks who tear down the work of others?)

In the bargain, ending this market-distorting exercise would be an immensely simpler tax-fairness recipe than concocting special rules for the rich like the Alternative Minimum Tax or the proposed “Buffett Rule.” Before anybody says “double taxation,” a) remember that most people are already taxed twice, in the form of income tax levied on wages already deducted for Social Security and Medicare; b) good luck passing a bill taking that logic to its conclusion of zero taxes on billionaire investors.

2. Don’t use a tax credit when an upfront tax will do. If you want to compel behavior through the tax code, do it obviously–not through a rule that many of us only encounter every March or April. If we want people to use less gas, hike the gas tax instead of trying to bribe motorists with gimmicky credits for hybrid vehicles. If we think making a quick buck through day trading is bad, impose a tiny financial transactions tax instead of screwing around with qualified and unqualified capital-gains tax rates.

(If you think that a tax credit doesn’t inflate other taxes, the deficit or both, I can’t help you. Go away.)

3. One tax vehicle per task. What is the point of having multiple tax-sheltered retirement and education-savings accounts? Even the Bush administration, for all of its numerous faults, tried to fix this. If we want to reward a socially-desirable activity, pick one credit or refund that works for most people and stop worrying about edge cases. Life is not always fair; in other news, the government will confiscate some of your money every year and spend it on things you hate.

Note that I haven’t written a word about specific tax rates. That’s higher-level math than I care to get into, and I’ve done enough spitballing here already. But I will stipulate that progressive taxation is a good idea (a truly flat tax would either shaft the poor or bankrupt the government), and that I’m willing to trade lower rates for a small national sales tax.

I’m also willing to pay a little more. I can afford that. I don’t know that I can afford spending the rest of my life worrying about losing the tax game.