Sadly, the discussion of tax law and tax “reform” never involves issues of fairness and equity in the law. It only involves political agendas.
There have existed for years several true inequities in the tax law – some that penalize taxpayers and some that erroneously benefit taxpayers.
For example - the way Social Security, gambling activity, and hobby income is taxed, the disallowance of legitimate required “out of pocket” employee business expenses, the double taxation of corporate dividends, limiting the deduction for state and local taxes, using the Tax Code to distribute social welfare benefits, and the deduction for depreciation of buildings (real property).
If you combine the current methods of taxation of Social Security benefits and gambling activity it is possible that a taxpayer who has $1,000 in gambling winnings and $2,000 in gambling losses – who has actually lost $1,000 – can end up paying federal income tax on $1,850.
Social Security benefits should be taxed the same way other retirement account income is taxed, with an annual allowance for the recovery of employee contributions.
Legitimate “out of pocket” expenses directly related to the production of all classes of income should be allowed as an “above-the-line” deduction that reduces AGI – just like the expenses of a self-employed individual and expenses related to rental income reduce AGI. This includes gambling losses, the expenses of an income-producing hobby, the income or principal based management fees charged on a brokerage account (and perhaps investment interest), necessary or required employee business expenses, and legal fees for all types of settlements and judgements.
Expenses claimed as an Itemized Deduction on Schedule A should be limited to indirect “general” costs of living – like medical expenses, state, local and foreign taxes, mortgage interest, charitable contributions, and casualty expenses.
So, what do you think?
TTFN
