Donald Rumsfeld's Letter to the IRS

Did you hear about or see Donald Rumsfeld’s letter accompanying his tax  return to the IRS? Mr. Rumsfeld was Chief of Staff under President Ford and then Secretary of Defense in the George W. Bush Administration. 

It turns out that he writes a letter to the IRS to accompany his tax return every year. This year he published the letter on Twitter. Here it is:

He brings up a point that is on my mind this close to April 15: why do so many people use professional tax preparers? Mind you, over the years I have prepared or reviewed tax returns for very wealthy people. It is understandable why such people have preparers. I will when I become ridiculously rich.

What we are talking about are your neighbors or mine. Perhaps they have a small business, perhaps they own a duplex or perhaps inherited a little bit of money. They are far from broke but nowhere near wealthy. Why are they using a preparer?

Because the average person can hardly do his/her own return anymore.

If one is poor, then one is looking at the earned income tax credit. That thing makes even professional preparers cringe. Did you know there is a tax credit for low-income taxpayers contributing to their 401(k)?

Let’s say you start making a little bit of money. When does your deduction for student loan interest phase-out? Do you know how to handle the child care tax credit if you have dependent care taken out through your cafeteria plan? Is there a tax credit for those new windows on your house?

You and a family member own an LLC. You draw a paycheck. Do you owe self-employment tax on the profit left over?

That duplex shows a tax loss, caused mostly by depreciation. Can you claim the loss on your tax return?

You start making money. What is the “net investment income” tax, and does it apply to a family business you have little to do with, other than maybe annual meetings? What about that bank account you keep in Canada, as you have a cabin there? Is there any kind of tax break for all that alternative minimum tax you have paid in recent years?

I am a professional tax advisor, and I agree that the system is broken. There is no equivalent to our income tax preparation industry in the U.K. for example, which is even more remarkable when one remembers that perilously close to one-half of Americans do not pay income taxes.Thanks to Donald Rumsfeld for speaking out on this matter.