CPAs, more than any other professionals, understand the impact that taxes have on people’s finances. The AICPA, as part of its push to promote financial literacy, has introduced the Total Tax Insights calculator, an online tool designed to give U.S. taxpayers a clearer, more complete picture of their estimated total federal, state, and local tax obligation.
“Here at the AICPA, we recognize that taxes are one of the public’s most pressing issues, and we’ve been a longtime advocate for sound tax policy, transparency, and simplification,” AICPA President and CEO Barry Melancon, CPA, CGMA, says in a video introduction to the Total Tax Insights website, totaltaxinsights.org. “We believe that citizens should know that a tax exists and how and when it is imposed.”
The calculator is powered by a database of more than 20 federal, state, and local taxes for 3,035 U.S. counties, the District of Columbia, and Puerto Rico. The database includes many of the taxes (federal and state income, Social Security, Medicare, etc.) and a few of the deductions (charitable contributions, mortgage interest, medical expenses) commonly encountered in preparing individual tax returns. In addition, the tool can calculate the impact of several point-of-sale taxes usually not seen in the individual return process. Examples include various sales, restaurant, utility, alcohol, cigarette, and lodging levies.
“The idea is to give the public a better idea of the various taxes that impact them,” said Edward Karl, CPA, AICPA vice president–Taxation.
People know that they pay various income and sales taxes, Karl said, but they rarely, if ever, see a picture of how their total tax responsibility adds up over the course of a year. The Total Tax Insights calculator provides an estimate of how much of a person’s income goes to paying all of those taxes.
A recent AICPA poll indicates that a majority of Americans don’t know how many taxes they pay or how big a financial bite those taxes take. Two-thirds of a nationally representative sample of 1,000 U.S. adults contacted by phone in April said they could not accurately estimate how much of their income they pay in federal, state, and local taxes. Among respondents who make less than $100,000 a year, the percentage was 72%. Only 11% of those surveyed said they had recently added up their total tax bill.
Clarus Research Group conducted the survey for the AICPA.
GOALS FOR TOTAL TAX INSIGHTS
The AICPA worked with a vendor to create more than 3,000 formulas that allow the calculator to generate estimated taxes based on more than two dozen data inputs. Still, the calculator and database should not be considered comprehensive. The tool doesn’t include some types of taxes nor does it cover all tax deductions and credits. However, additional features are being considered for future versions.
“It’s not tax preparation software,” Karl said. “It doesn’t replace a valued CPA. It’s about giving the public a rough sense of the impact of taxes in their lives.”
The calculator’s results page shows an estimate of the total taxes a user would pay in a specific location based on specific data inputs. A pie chart shows the percentage that each tax contributes to the total tax bill.
Once users have a better understanding of their total tax obligation, they can consider the impact of taxes in financial decisions such as weighing the impact of fuel efficiency in choosing a new car.
Another main focus of the site is to direct users to AICPA financial literacy campaigns, most notably the main 360 Degrees of Financial Literacy program as well as its 360 Degrees of Taxes and Feed the Pig initiatives. The site also features a page on promoting sound tax policy that links to the AICPA’s tax policy and tax reform resources.
Between the site and the calculator, the AICPA wants users to come away with a greater awareness of the need for better financial and tax planning and the importance of considering the impact of taxes when making important financial decisions.
HOW THE CALCULATOR WORKS
The calculator is at totaltaxinsights.org/calculator. Users can access the tool’s data-input page by clicking on one of the 50 states, the District of Columbia, or Puerto Rico, which are featured on an interactive map.
Once they are on the data-input page, users can fill in fields in five categories:
- Where You Live: Users pick a county and, for some states, a city as well.
- Income Information: Users enter marital status, number of dependents, wages, self-employment income, capital gains, dividends, federal adjusted gross income, medical expenses, mortgage interest, and charitable contributions.
- Your Home: Users enter their home’s county-appraised value, plus average monthly utility bills.
- Personal Expenses: Users enter their average monthly cellphone bill, how many packs of cigarettes they smoke per day, if any, and how much gasoline and alcohol they purchase each month.
- Other: Users enter how much money they spend each month on nonperishable groceries; restaurant meals; store-bought goods such as clothes, electronics, and toys; and personal property taxes in certain jurisdictions.
While users can enter more than two dozen data points, only four or five are required, depending on location: county and city, marital status, federal adjusted gross income, and number of dependents.
“JUST THE FIRST VERSION”
Melancon suggested the possibility of a tax calculator last summer during discussions about opportunities for the AICPA to generate public interest in the accounting profession in preparation for the Institute’s 125th anniversary celebration, which took place in May. After several months of research, the Institute had molded a rough idea into a plan, with development of the calculator beginning in January. The tool was publicly introduced on May 15.
“It really is an amazing effort by a lot of people in the Institute to pull this together,” Karl said.
Melissa Labant, CPA/PFS, J.D., director of tax advocacy for the AICPA, said that the calculator’s debut is a beginning, not an end. “This is just the first version,” she said. Future versions could include features to facilitate comparisons among states.
The AICPA plans to assess public feedback to the calculator and use that information to decide which improvements to make in the next version, which could come out as early as late this year.
Because of the variety and volume of tax rates, multiple data sources were used in building the calculator’s database. The AICPA is considering doing updates to the database, probably on an annual basis, but no final decisions have been made, Karl said.
The AICPA’s Total Tax Insights calculator allows taxpayers to see an estimate of their total tax bill. The tool is part of totaltaxinsights.org.
The calculator produces an estimated total tax bill with more than 20 federal, state, and local levies. Pie charts show the percentage of the total bill each tax constitutes.
An AICPA poll indicates that most Americans don’t know what their total bill is or how to estimate it. More than half of those surveyed think they pay fewer than 10 different taxes.
The calculator’s database contains federal, state, and local tax information for all 50 states, 3,035 counties, the District of Columbia, and Puerto Rico. Users can select a location and then enter nearly 30 pieces of information, though only four or five are required. The calculator runs the user-entered data through thousands of federal, state, and local tax equations to determine the estimated total bill.
The AICPA is planning to release an updated version of the calculator, perhaps as early as late this year. The Institute is evaluating different features and improvements.
Jeff Drew is a JofA senior editor. To comment on this article or to suggest an idea for another article, contact him at email@example.com or 919-402-4056.
“Illinois ‘Click-Through Nexus’ Law Held Unconstitutional, May 2011
- CPA Client Bulletin (CB_FI12, CB_FN12, CB_LN12, CB_IF12, CBDXX12, CBEXX12)
- CPA Client Tax Letter (CTLFI12, CTLFN12, CTLLF12, CTLLN12, CTLDXX12)
- 49 Tax-Cutting Moves for Individuals (#745550)
- Form 990: AICPA’s Answer to Unlocking the Tax Complexities (#731142)
- Innovative Tax Planning for Individuals and Sole Proprietors (#745536)
National Tax Conference, Nov. 7–8, Washington
For more information or to make a purchase or register, go to cpa2biz.com or call the Institute at 888-777-7077
The Tax Adviser and Tax Section
The Tax Adviser is available at a reduced subscription price to members of the Tax Section, which provides tools, technologies, and peer interaction to CPAs with tax practices. More than 23,000 CPAs are Tax Section members. The Section keeps members up to date on tax legislative and regulatory developments. Visit the Tax Center at aicpa.org/tax. The current issue of The Tax Adviser is available at thetaxadviser.com.