Is Tax Math Fair? And does anyone actually understand it?

[Cameron Price]

I just filed my taxes for 2018, and had to pay in a significant amount of money. This got me exploring some of the details of my situation and  trying to figure out some of the math and the logic for certain things. I do have a CPA who helps me, but I'm a a Real Estate Broker and Investor with a background in Engineering, so I'm constantly trying to learn as much as possible and grasp everything I can with a solid understanding. 

My question is for those who have a DEEP understanding of the tax code.  I see all these seemingly arbitrary numbers and limitations and exceptions, and I wonder where they come from. I know that's way too deep of a topic to answer quickly, but If you really understand what they are trying to accomplish, do you think it's fair overall? Or do you think most of these rules are made to benefit a particular group that lobbied well? Things like deprecation deductions only being able to offset ordinary income up to a certain limit, unless you are actively engaged in real estate (something along those lines), Or biodiesel credits, but only if you do this, but not that.  Don't get hung up in the specific examples, because I'm ignorant when it comes to the tax code (that's why I pay my CPA) but I'm genuinely curious if people actually understands these things, or they just know the rules and follow. 

It's like there's a huge system of "if this, then that"  someone somewhere had to program into Excel and someone had to understand the logic completely to program it (write the tax code). I'm sure it has been many people over time, but you get the analogy. I wonder if some of you on here feel you have a good grasp on the logic, and if you do, do you think it's fair overall? Do you understand the caps and the exceptions? I know that's a loaded question, but i think it would be a worthwhile discussion.

[Nicholas Aiola]

@Cameron Price As you mentioned, it's definitely too deep of a topic to condense the intent and decisions behind writing ~80k pages of the tax code but, to put it very simply...

Tax dollars are one thing - the money the government collects from income taxes is used for Social Security, Medicare, national defense, transportation, eduction, and so on and so forth. A quick Google search will give more detail on that.

But as for the Code itself - in a broad sense, the tax code is designed to incentivize you to put their money where the goverment wants you to put it. We've all heard that manipulating (legally, of course) the tax code is how the rich stay rich. How? By following the "instructions" of the tax code. For example...

• Real estate is a tax-advantaged investment in several facets (depreciation, capital gains, 1031 exchanges, opportunity zones, the list goes on and on). Why? The goverment wants people to provide housing to others.
• Corporate tax rates were slashed and pass-through deductions were implemented in the TCJA to promote entrepreneurship and start ups.
• Energy-efficient tax credits exist to encourage people to go green and purchase environment-friendly goods and products.
• I don't need to explain why there is an abundance of oil and gas tax credits and deductions.

Where you see a tax credit or deduction, a trained eye sees an opportunity.

If you (or someone you hire) knows the tax code, how to read it, and how to apply it, you are able to structure your investments, businesses, and financial moves in a tax-efficient manner.

So, I guess, to answer your question - in my opinion, the tax code is fair but only if you know how to navigate it.

Again, this is an overly simplistic summarization. I'm sure others will have more info and opinions to add.