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Can you confidently explain the basics? US tax system?
If you can’t, you’re not alone. this 2024 National Tax Literacy SurveyThe survey, conducted by the Tax Foundation, showed that more than half of respondents lacked “basic tax knowledge” while only 2% showed “proficiency” tax knowledge.
“Taxes play a vital role in the lives of individuals and families, tax knowledge can affect financial planning, employment opportunities, where to live, how to vote and other decisions,” the Tax Foundation report reads.
Carolyn Bruckner, a tax professor at American University’s Kogod School of Business and managing director of the Kogod Tax Policy Center, said the lack of tax literacy in the United States is a concerning issue that could have “very real consequences,” especially for taxpayers who own small businesses.
Here’s what you need to know about U.S. taxes
‘Too Many’ Americans Don’t Understand Their Taxes
“Too many Americans don’t know, one, when it’s due, and two, how the taxes are calculated and the politics and policies behind it,” Bruckner said..
She said many Americans are particularly troubled by federal income taxes. This is also reflected in the National Tax Literacy Poll, where a majority of respondents said they did not understand or were unsure of basic concepts related to income tax filing.
“People often don’t understand how income tax is calculated and that it’s a progressive tax rate structure. And I don’t mean progressive in the political sense, but I mean the more money you make, the more tax you pay,” Bruckner explained.
Bruckner said this could have “very real consequences.” She explained that in the best-case scenario, taxpayers are forced to rely on paid accountants and tax preparers, meaning they spend money preparing taxes that could be used for other purposes.
But at worst, a lack of tax knowledge can get you into trouble—especially if you own a small business or are self-employed. For example, Bruckner noted that problems can arise when small business owners don’t fully grasp what they can deduct.
“They may be too aggressive in claiming deductions that aren’t really deductions, and that could get them into trouble,” she said.
What can we do to improve tax literacy?
Bruckner called on government officials at all levels to devote more resources to tax education.
“That’s not enough to fund the tax,” she said. “You have to fund the education of the tax base, the taxpayers, so they understand what they’re going to owe and when they’re going to owe it. And that’s not just the federal government, but state and local governments.”
When filing, Bruckner also advised taxpayers to stay away from artificial intelligence. “Generative AI is not smart enough to reliably process tax returns,” she said.
The IRS website contains educational materials for taxpayers who want to learn more. Bruckner explained that the IRS’s Volunteer Income Tax Assistance is also a helpful, free resource for people who need help filing their taxes.
“VITA is a tax preparation service of the Internal Revenue Service (IRS) administered in partnership with nonprofits and organizations across the United States,” she said. “It’s in every state.”
The service is available to eligible taxpayers, including “taxpayers who generally earn $67,000 or less per year, persons with disabilities, and taxpayers with limited English proficiency.” IRS website. Taxpayers who want to help others can also sign up to become a volunteer preparer for the VITA program through the IRS.