Business has been good lately. Far better than it has been in previous years, in fact.

While money isn’t everything, knowing you have a solid income definitely helps things feel brighter. There are things I’ll be able to do this year that I wasn’t able to do previously, and everything seems more secure than it has in the past.

However, it makes tax season a little frightening.

The Woes of Taxes for the Self-Employed

As a freelancer, I make estimated tax payments quarterly throughout the year. I just paid the first installment for the year, and it hurt. It might hurt more for me than for those with traditional employment simply because I get to be the one to take the amount out myself. With a regular pay stub, the amount you pay is far less visible.

Also, I actually pay more taxes than someone working a traditional job earning the same amount. This is because I don’t have an employer to pay part of the Social Security tax that our wonderful government has levied against us. I eat the full cost of that.

When tax season rolls around, most other people get returns on amounts they overpaid. If I’ve planned things out properly, I don’t get nearly as much back, and whatever amount I do receive isn’t really the pleasant surprise that most other people enjoy.

On top of it all, the way I report taxes on my return is more complicated as well, especially now that the Form 1040 has been simplified adjusted. For most people, it’s far simpler—their entire tax return will all fit on a single half-sheet of paper front and back. However, the IRS didn’t actually condense Form 1040.

They exploded it.

You  now have several schedules (basically sections of the old 1040) to track down that you may or may not be fully aware that you need. If you are aware, you aren’t likely to know which ones apply to you. For me, filing taxes this year was basically a game of new surprise forms being thrown at me almost every time I had to write down a new number on the main 1040. Multiple times, I got to a section and found out I needed to fill out one line on this or that schedule, each of which takes up another sheet of paper.

The end result was several forms with only a line or two filled out, a fat envelope, and an irritated writer.

Don’t get me wrong—I love having the freedom to work when and where I choose. I suppose this frustration and extra expense is the price I pay for that freedom.

Ironically, it’s paid to a government that claims to uphold freedom. That it penalizes it in this way is ironic.

Penalizing Prosperity

The current tax system also penalizes prosperity (which is a form of freedom, one could say).

Look at the income tax tables. The one on Form 1040-ES (download it and go to page 7) actually illustrates this concept wonderfully.

You’ll note that at each threshold of income, the percentage you’re taxed for any amount above that is increased. The more you earn, the higher a proportion of your income you pay.

Some may argue that it’s the duty of the wealthy to pay more, that such is their “fair share.” Whether that’s true or not is beyond the scope of this rant, but there’s something fundamentally wrong with the way this system operates overall.

The US government relies on revenue from its people. The more its people earn, the larger that revenue stream would be, even if they were all taxed a flat percentage. As such, it’s in the federal government’s best interest for its people to be prosperous (from a financial perspective, at least).

So why in the world would they penalize people for earning more?

That’s essentially what they’re doing. The more you earn, the higher the rates you’re obligated to pay. As a result, there’s less incentive to actually increase your income. If you do, tax season will tend to leave an increasingly bitter taste in your mouth year after year.

Again, there’s something fundamentally wrong with this. There’s something fundamentally wrong about a system that penalizes its revenue stream for having a higher income potential. I don’t know about you, but something about that seems doomed to fail.

The Problem of Competing Ideals

Unfortunately, people don’t seem as concerned about this as they are about penalizing the wealthy or incentivizing contributions to this or that cause. Meanwhile, the wealthy do all they can to minimize their tax burden (and after what we looked at above, can you blame them?). They use all sorts of tactics to do this, and each time they do, there’s an outcry.

As the wealthy try to use various tactics to safeguard their wealth, the government seems to hear the outcries of the people rather than mind the implications their tax policies have for their business model (so to speak). The end result looks something like this:

• Wealthy person does a thing. They owe less in taxes, perhaps because they have to report less income.
• The government makes new policies to counter the tactics of the wealthy. This might involve reporting the protected income on a form.
• The wealthy adapt to the new policies with new tactics, often with more complex structures and practices.
• The government creates new policies and forms to counter the new complex tactics of the wealthy.

The cycle goes on. Meanwhile, people clamor that there should be reductions in taxes for this or that type of income for this or that reason. The government provides those reductions on the condition that the person seeking them fills out a form, In the end, the whole sum of policy and paperwork that results from so much time spent in this conflict means hardly anyone is actually aware of the tax benefits the government provides.

Those who are aware tend to be the wealthy who can afford to employ people to handle their tax planning for them.

Personally, I refuse to employ a tax preparer (no point paying someone to tell me how much I need to pay someone else). My tax situation is too complex for the free services offered at various institutions. So I get to deal with this catastrophe all by myself.

The bigger problem, however, is the people clamoring for the wealthy to be penalized for their wealth are really only accomplishing one thing—making it harder to figure out their own taxes and seize all the opportunities they’re provided. Massive companies and wealthy CEOs will find ways to adapt. They can pay for it. The average American worker, however, will stick with the free tax prep services they get from H&R Block, completely unaware of what levels of prosperity they might achieve if they tried this or that venture.

Meanwhile, the government keeps finding ways to penalize its revenue stream, a system that is ultimately doomed to fail. In the end, no one wins.

What are your thoughts? Do you agree? Do you think I’m being a whiny baby? Let me know in the comments! Also, share this rant with all your friends so they can get mad at the system too! All proceeds go toward helping freelancers avoid getting audited by the IRS. Really.