By Matthew Cimitile, University Communications and Marketing
Tax season is upon us, the time of the year when Americans file their returns and hope to receive money back from the federal government.
Though the famous adage states the certainty of death and taxes, for more than half of America’s history there was no income tax. A brief tax on income came into existence to help fund the Civil War and was repealed shortly thereafter. In the 1890s, an income tax was passed by Congress but was struck down by the Supreme Court.
It wasn’t until the nation ratified the 16th Amendment to the Constitution in 1913, giving Congress the power to lay and collect taxes on incomes, that the income tax as we know it came into existence, according to the National Archives.
To learn more about taxes and filing, we turned to USF St. Petersburg Accounting Professor Mike Sinclair. In addition to teaching courses on federal income taxation and auditing, Sinclair has nearly two decades of experience as an IRS agent. During that time, he audited individual returns and small businesses, worked in the business fraud and criminal investigations unit and ended his IRS career in the global high wealth division.
Accounting Professor Mike Sinclair.
We discussed with Sinclair about why we need to file returns, some major myths and mistakes around taxes and how being an IRS agent has informed his teaching.
Why do we need to file taxes in the first place?
The reason we have to file taxes is to rectify what the government took out of our paychecks versus what we actually owe based on the tax code. Over the years, the U.S. government realized it is easier to collect more taxes and send you back money versus the other way around. Therefore, each tax filing season, many of us get money back rather than owing additional taxes. So, it is worthwhile to file taxes, as it is our chance to rectify that ledger.
Why is April 15 the deadline to file taxes?
When the 16th Amendment was ratified that created the income tax, it only pertained to about 2% of the population. However, as the income tax expanded to include millions of people, the number of Americans filing increased dramatically. The deadline had to get extended beyond the first of the year so both government and individuals could get critical tax info from their employers. Originally the tax filing deadline was March 1, then it became March 15. It was made April 15 in 1955.
What’s the biggest myth about taxes?
That getting a big tax refund is a good thing. People treat it like a bonus, but it actually means you gave the government an interest-free loan. A smaller refund or even a small balance due (that you can pay) is usually a sign your withholding is dialed in better.
What’s the most common mistakes people make when filing?
The most common mistakes are very simple ones, such as you don’t sign your return or people put in their social security number wrong or they have their bank account info off by a digit. Another common mistake is people forgetting to report additional income, such as a side gig or freelance work.
These simple mistakes can be time consuming or cause rejections. If you still mail in your return, it will get mailed back to you to correct, which can slow down any refund. E-file corrections can take just minutes to correct.
What happens if you don’t file?
If your total income is below the standard deduction (approximately $13,000 for single filers currently and around $26,000 for married filing jointly), you generally have no filing obligation. But let’s say you do owe money. Then the government can come after you literally forever.
Are tax returns audited as much as people think and how dreadful is it being audited?
The vast majority of taxpayers are never audited. And the vast majority of audits, more than 95%, are what we call a correspondence audit. That means something is received by the IRS that doesn’t match on the return. This will require a correction that in most instances is easily done.
The number of face-to-face audits that occurred when I was at the IRS averaged about 2 in 1,000 filed returns. The odds of getting audited and having to talk to an IRS agent is incredibly rare. That said, certain red flags, like reporting large business losses year after year or claiming credits you don’t qualify for, can raise your audit risk. The IRS uses a mix of computer filters and human review to decide which returns get extra attention.
If you are a billionaire, taxes and interactions with the IRS can be pretty rigorous. And with large corporations, such as Apple, there are IRS agents who go to their corporate offices every day to conduct continuous audits because of the size and complexity of those businesses.
How has your experience as an IRS agent informed your teaching?
I think good professors figure out ways of incorporating their personal experiences and using them as an asset and teaching tool for students who don’t yet have those real-life experiences. Students regularly comment on how incorporating my real-life experiences into the classroom helps them better learn and understand what can be a complex subject.