Benjamin Franklin once noted that "In this world nothing is certain but death and taxes." For people slogging their way through income tax forms, there may not seem to be much difference between the two. Even fleeing the country may provide no relief (especially for citizens of the United States, which is one of the few countries that taxes personal income made outside of the country). According to Wikipedia, as of 2005, personal income tax rates worldwide range from zero percent in Monaco, to 53.2 percent in Denmark (talk about something being rotten!), and topping out at 59 percent in Sweden. Admittedly, in many countries, people earning little or no money pay no income tax. In the United States, the percentage has reached 38 percent, and is trending upwards.
For those of us who have Uncle Sam on our payroll, paying income taxes means complying with the federal tax code created by Congress and enforced by the Internal Revenue Service (IRS). For Americans who do not throw up their hands in disgust and turn it all over to tax accountants and CPAs, this annual stress-fast typically involves figuring out the federal tax code as it applies to their individual cases, deciphering the vague IRS publications, and filling out the endless IRS forms. People with especially complicated financial situations — such as those running small businesses on their own, or who have investments in foreign partnerships and royalties — often find that the process of completing the pile of tax forms, can easily consume several weekends (and aspirins).
Fortunately, there are a variety of informative resources on the Internet that can be a big help to the stressed-out taxpayer, and in this article I will examine some of the more promising websites.
From the Horse's Mouth
Many Americans now do their taxes using tax-preparation programs that either run on their PCs or on the Web, and for these people, there is no need to locate any federal tax forms, because those forms are included with the programs, and can be updated to the latest tax code changes, either automatically or manually. The remaining taxpayers, going it on their own, could try to obtain blank tax forms from one of the distribution points in their local area — such as libraries. However, every year the number of such distribution places seems to decline, undoubtedly because more and more people are doing their taxes electronically. Also, the forms available tend to be only the most commonly used ones.
The remaining alternatives are to download the taxes from the IRS website, or to request — online or over the telephone — that the forms be mailed to you. The site has a section devoted to forms and publications, where they can be found using the form or publication number, by category, or by using the site's built-in search feature. All of the forms are in Adobe PDF format, and can be printed on your computer printer. Years ago, the forms were only static PDF files, but now the forms can be filled out electronically, similar to how California has been doing it for several years.
The IRS website has a number of other resources, most of which are never utilized or even known to most taxpayers. As of this writing, the site offers 15 tax-preparation tools: You can check the status of your refund online (72 hours after you e-filed, or 3-4 weeks after you mailed a paper return). If you are an employee, you can calculate the optimal amount to have withheld from your paycheck, to avoid being hit by a high tax bill and possibly penalties (due to underwithholding), and to avoid giving Uncle Sam too much of an interest-free loan (due to overwithholding). If you are an employer, you can request an Employer Identification Number (EIN). The Electronic Federal Tax Payment System (EFTPS) is a convenient way to securely pay your taxes online (no more worries about lost checks), and particularly helpful if you have to make quarterly payments. If you need to break up your tax liability into multiple payments, as a result of financial hardship, you can apply for the Online Payment Agreement (OPA). If you are interested in having your taxes prepared locally, with someone who can then file them electronically, you can search for an Authorized e-file Provider in your area. Tax professionals can apply to become approved IRS business partners, and be listed on the site.
Additional tools allow you to determine whether you may be subject to the Alternative Minimum Tax (AMT), and whether you are eligible for the Earned Income Tax Credit (EITC). If you earned $54,000 or less in 2007, Free File makes it possible to prepare and file your federal income taxes online, at no cost. You can calculate the amount of optional state and local sales tax you can claim on Schedule A. You can identify tax-exempt charities, and figure out how much a contribution to one or more of them is tax deductible. You can sign up for the IRS's subscription services, which sends out information via email. The "Tax Trails" online wizard steps you through a series of questions, to help you answer yours. You can locate the nearest Taxpayer Assistance Centers, in case you have grown tired of being on hold when calling the IRS for help, and would prefer talking to an IRS representative face-to-face.
More Federal Tax Info
The Web offers a wealth of non-governmental sources of federal tax information. Yahoo Finance has a Tax Center, which makes available tax news, 15 how-to guides, calculators, articles from financial pundits, and an extensive glossary of financial terms, a number of which are tax-related. About.com Taxes has similar information, but generally with more substance, and a much cleaner delineation between tax material and everything outside that realm. One will find a blog written by William Perez (a tax accountant who represents clients going up against the IRS), as well as many articles that he has written, on tax basics, filing status, dependents, investing, and popular tax breaks.
The Tax Foundation, based in Washington DC, focuses more on in-depth tax information and analysis, without any of the tax calculators and other tools listed on the websites mentioned above. The organization offers tax news, research publications, a tax policy blog, data on almost every tax in the United States, a tax policy webcast, an FAQ, and a page explaining Tax Freedom Day, which is the day that the average American has earned enough to pay their federal taxes; in 2008, it was April 23. Foundation president Scott Hodge notes that "Americans will still spend more on taxes in 2008 than they will spend on food, clothing and housing combined." Other financial websites corroborate this point, documenting how — for the typical American — taxes, and not housing, is his or her primary expense.
Small-business owners will find online material geared toward their interests. For instance, FileTaxes.com has a service that allows you, the business owner, to submit payroll information online, and they generate the 1099 and W-2 forms for you. If you are first getting started with your own business, then the first time you fill out your federal taxes, you will need to know your IRS business activity code.
In a State of Shock
Unless you live in one of the seven states that levy no income tax whatsoever (Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming), then even when you have finished your federal tax forms, you still have miles to go before you sleep. You may be reeling from the federal burden, but your state legislators still want their cut. The pain will be lessened if you are using a tax-preparation program with the ability to calculate your state figures for you and print the completed forms; most if not all programs support this.
If you have specific questions and issues that go beyond what your tax-preparation program can answer, or you are doing your taxes without such a program, the fastest way to get the needed forms and instructions is from the income tax section of your particular state's website. For instance, Californians can check with the Franchise Tax Board (FTB). (There is a toll-free phone number if you would like to speak with a representative, but the wait times can be quite lengthy, particularly during tax season.)
For those who are curious as to what residents of other US states are paying, as individuals and as corporations, the aforementioned Tax Foundation has detailed and up-to-date information on state individual income tax rates, state corporate income tax rates, and the combined state and local tax burdens. The tables show, for each state, the federal deductibility status, the marginal rates for single filers, the standard deductions, and the personal exemptions. Lower tax burdens in nearby states may be enough to tempt some people to do a bit of "relocation research".
The online resources noted in this article are by no means exhaustive. Readers are invited to submit any other worthwhile sites that they know of.