I lived in four countries before moving to the USA and none of them required me to file at all. As an ordinary employee, taxes were PAYE (Pay as you Earn) and there was no complicated system of tax exemptions that aren't either handled directly at source, or as separate rebates (like child allowance payments). I long for that day in the USA.
Not only did they raise the standard deduction, but there's that $10k limit that you slam into when trying to itemize. My total tax burden went up about 2% after that change, but it does make filing theoretically easier, except that my wife is always holding out hope so we go through all the work to itemize only to discover yet again that we're over the cap and wouldn't benefit.
It's a $10k limit on deductions so dependents, charitable contributions, mortgage interest, and probably some more stuff has to stay under that cap or it doesn't count. Since that change went in we've never been able to even match the standard deduction. It increased our tax bill by about 2% and my wife has still never forgiven Trump. I think we are directly in the middle of "squeeze the middle class" part of that tax change.
However, there are now limits on individual deductions that didn't previously exist, like the SALT cap of $10,000. It also appears you were affected by the cap on the (loan) value of homes which for which you could take the mortgage interest deduction, which was lowered to $750k from $1m by the TCJA (meaning, if your home is worth more than $750k for loan purposes you can only deduct the mortgage interest attributable to the first $750k of the loan), or by the elimination of a number of 2% items (items that pre-TCJA could be deducted only if they exceeded 2% of your AGI).
there's that $10k limit that you slam into when trying to itemize
This is...incompletely stated...the only $10,000 limit when itemizing is on SALT taxes (state and local income and property taxes). There is no $10,000 limit on deductions in general.
And indeed, the IRS itself states "For 2023, as in 2022, 2021, 2020, 2019 and 2018, there is no limitation on itemized deductions, as that limitation was eliminated by the Tax Cuts and Jobs Act." (https://www.irs.gov/newsroom/irs-provides-tax-inflation-adju....)
The increase in the standard deduction means that it became more beneficial for many taxpayers that used to itemize. But many things that could be itemized in the past can no longer be itemized, which is probably what affected you (however, due to the way the TCJA was written, that prohibition only applies until 2025 unless extended by Congress, which will depend on who wins the 2024 election).
It is WAY past time for this. It's absurd that we have to regurgitate tax information that has already been reported to the government. But it's even more absurd that the government gives us no way to do so electronically.
And then there's the disgusting shell game that IS the entire U.S. tax system, which is the root of the whole problem.
> [1] on April 22, 2019 ProPublica published an exposé heavily criticizing the implementation of the Free File Program, which the bill would codify. The House then removed the Free File provision from the bill, which passed the House and Senate and was then signed by the president.
No to mention the brain drain/opportunity costs of employing people working in the tax prep software industry when they could be solving more other more useful problems.
This sounds kind of like a conspiracy-theory, so it's worth providing a source.
Norquist himself, and his organization Americans for Tax Reform, believe that making tax payers go through the process of preparing their tax return forces us to audit our comfortability with paying taxes[0],[1]. If, on the other hand, we just signed off on numbers that the IRS provided us every April, we'd be less aware of, and therefore less likely to protest, increases in taxes.
This isn't a subtle, arguably-the-cruelty-is-the-point sort of situation, this is a I'm-not-using-anesthetic-because-I'm-concerned-you-aren't-sufficiently-afraid-of-the-thresher-that-just-cut-your-foot-off-when-I-ran-you-over-with-it. I'm not a big fan of paying taxes, and I don't like it when my taxes go up. But I already feel that when I look at my paystub, or pay property taxes. The whole effort to make tax returns harder so people hate taxes hinges on the idea that most people are completely unaware of taxes until April 15th rolls around. It's cynical in the extreme, and that's really off-putting to me.
I doubt very many people know how much taxes they actually paid in 2022, even after the pain of filling out taxes. Instead, the number they know and remember is the size of the refund check (or the tax check they have to send out) in April. And the size of that check has relatively little to do with your actual tax rate, instead being driven by the withholding tables instead.
It might be nice if the IRS provided a summary of what you paid + your effective tax rate in a prominent place on the first page of your tax return. Maybe they could include last year's info for comparison.
If we ever reach a point where the IRS just tells you what they think you owe, they could include the same summary to placate the Norquist types (who undoubtedly will then start complaining about something else).
I already feel it when I see the number every 2 weeks on my paycheck. Or when I'm advised of my property tax bill every 3 months. Or register a car. Or buy something at a physical store. Taxes are everywhere, and you have to work really hard to stay ignorant of how much they're taking out of your pocket.
Literally all Norquist is doing is making it so for about 2 weeks a year, what little free time I have after the kids are down for the night is spent in tense almost-argument with my wife as we seek out all the places our employers have secreted the tax documents they already provided to the IRS. Its such a colossal, pointless waste of time for people who have a simple tax situation.
I have never, not once, looked at the numbers produced by performing my tax return (which, again, the IRS already performs so they can double check my numbers) and thought "Thank you Grover Norquist for keeping me aware of how much my government is costing me!". Because I am already made aware of that when I get my very first paycheck from a new job.
Speaking of toll booths vs electronic debit, when I lived in the Bay Area, I had to commute from east bay to west bay every day. For the first 4-5 months, I was paying cash, because in my scant spare time, I hadn't had time to get transponder and direct debit set up. I was paying $35/week. I didn't become less aware of that cost when I switched to the transponder, because the actual cost was time. Time is something I have very little of, so adding friction just wastes my most limited resource.
Using my most limited resource to make sure I'm aware of how the government might be using slightly too much of my like 10th most limited resource is a waste of my fucking time. Thus, I'm angry not at the government for potentially wasting my money, but at Grover Norquist for wasting my time because he thinks I'm too fucking stupid to realize what's happening.
> Because I am already made aware of that when I get my very first paycheck from a new job.
Taxes don't reduce your purchasing power insofar as everyone else also has to pay them, so your relative amount of post-tax money is the same, and the tax system is progressive, meaning your relative position is actually a little better.
> Speaking of toll booths vs electronic debit, when I lived in the Bay Area, I had to commute from east bay to west bay every day. For the first 4-5 months, I was paying cash, because in my scant spare time, I hadn't had time to get transponder and direct debit set up. I was paying $35/week. I didn't become less aware of that cost when I switched to the transponder, because the actual cost was time. Time is something I have very little of, so adding friction just wastes my most limited resource.
You just proved my point without even realizing it.
When you were forced to pay cash, they were forced to show you the price. You even remember the amount now, presumably years later. If they could have you pay cash without seeing the price I’m sure they would. If the price had changed from week to week, you’d immediately realize it because the amounts you’d interact with would change.
But that’s only possible with a purely digital system. As all the numbers happen behind the scenes.
Ask yourself this, why don’t any of those automated toll booths show the amount you “auto paid” rather than just “Ok!” Or “Paid!”? It’s because they explicitly do not want people to know what they are paying so they can raise the rates with minimal flak.
> It’s because they explicitly do not want people to know what they are paying so they can raise the rates with minimal flak.
Or maybe it's simpler to just say paid and they did that. I'd wager that they're well aware of push-back over fee increases but still do it anyway, because monopoly. And the roads need the money.
On that note, the real fun is going to be about how do we pay for the roads once the majority of traffic is not pay fuel tax...
I had to look it up, since it'd been several years since I drove past the BIG FUCKING SIGNS that tell you how much the toll is, indicate that you only get a discount if you're carpooling, and that you need the transponder for that discount. Have you actually been through the toll plaza I referenced? In addition to the sign (that is posted before the last exit before the toll plaza, so you can bail if you don't have the cash), there's also a digital display at the cash booths, to indicate how much it costs.
If the intent was to get us paying without realizing, they'd add additional incentives (like discounts) to getting the transponder than the fact that its simply (and obviously) faster.
You're constructing this straw man where the price at the register is murky and ill-defined, and if only we could remove the smoke screen, people would see how much money they're losing to taxes. But the reality is that anti-tax folks are the ones making it difficult to understand the price at the register, as it pertains to income taxes. There's quite the conversation to be had about the murkiness of appropriations, certainly. But adding friction to the tax return process doesn't make me want to call my congressman about where my taxes are going, but instead to ask why a senator in Wyoming or Texas is so excited to bend over backwards to protect the business interests of a company based in Mountain View, California, at the expense of all of their constituents?!
Disagree. You don't need Grover to make US taxes overly complex and burdensome. Just look at some of the tax bills Democrats have sponsored - vague tax rules that the IRS is responsible for implementing (and often making their own decisions on how to implement).
Basically new tax rules are put into place with little regard on making them simple or including data collection as a part of the tax change.
The last time we were given "tax reform" it was mainly about cutting rates for the wealthy rather than streamline and modernize how taxes are handled (the IRS budget has been constrained and prevents them doing anything other than barely function, which is a not an accident).
"Middle-class Americans saw mixed results as most of the benefits accrued to the highest earners."
I mean, yeah? 42% of Americans pay no federal income tax, how could tax reform benefit them unless it's handing out cash? Which we already do with EITC.
And the complexities and burden of the tax system go way, way back before Trump's tax reform. Think more like anything passed since the 1950's.
> You don't need Grover to make US taxes overly complex and burdensome. Just look at some of the tax bills Democrats have sponsored
You went out of your way to make this about partisan finger-pointing and I merely countered that there's plenty of blame to share. Way to deflect and spin!
Partisan politics is why the subject is so rancorous. I have no party affiliation and am happy to acknowledge and criticize the one that I am most sympathetic too. This is why we can't have nice things -- because we can't talk about policy and and government reform without it becoming a pissing match.
I did nothing of the such, I simply countered your argument.
You said "The last time we were given "tax reform"", which implies this is a recent issue. I countered with "look at some of the tax bills Democrats have sponsored", clearly showing it's NOT a partisan issue, both parties are doing it, and have been doing it for decades.
The original comment blamed Grover, so in fact you're replying to a chain of comments that were already partisan, so I reply with a comment about politics and you somehow blame me for making it partisan. Fun!
The weird thing is the IRS already knows my taxes better than I do… a few times I’ve made mistakes inputting forms or forgot to put something in, and I will always get a letter from them about it. They’ve already done my taxes so they should just send me a bill and not waste my time, possibly with the option to submit extra details they are missing like deductions… but that should be an option for people that need it. There is no reason for a w2 wage earner taking the standard deduction to need to file taxes.
How would you know if you're going to take the standard deduction without doing your taxes? I'm fairly certain the federal government doesn't know about all my deductions.
The standard deduction is now so high ($25,900) that for the vast majority of standard wage-slave Americans, it will not be reached.
> In 2017, 47.1 million taxpayers itemized deductions, relative to 15.3 million in 2018. This dramatic shift maps to a more than 19 percentage point drop in itemizers as a percentage of all taxpayers, from 30.90% to 11.47%.
The majority of this was people's mortgage deduction went from being more than the standard deduction (so itemization is worthwhile) to being less (so it's not worthwhile).
You can roughly estimate what your itemized deduction might be.
In most countries that have implemented such a system, the government prepares your taxes for you, and then you ok them or ask for adjustments. The vast majority that use standard deductions would just approve it, while those that know their deductions would exceed that can itemize it.
Why wouldn't such a system work here?
It's not like the act of doing your taxes is what makes your realize you're over the standard deduction. Most people will know if they've done standard or itemized in the past and act off that.
What part of the process prompted you to do that? TurboTax asking you if you want to itemize or not?
That's pretty much the extent most Americans think about itemization as it stands, and whether it comes from a tax software or the government, the result is going to be the same.
The vast majority of people take the standard deduction, so offering a "here's what we think you owe, but if you disagree feel free to do the full return" form would be a huge efficiency gain.
Your comment seems like a prime case of perfect being the enemy of good.
> The vast majority of people take the standard deduction
Unless they are a homeowner, probably.
Part of the issue is that the US tax code is a lot more complex than most countries. (And the homeowner-targetted deductions are kind of insane and bad policy too).
Still, I don't disagree with the basic premise. They probably know enough to know if itemizing your homeowner-related things would be better for you, and do it that way. You can ask for adjustments, or you could always ignore what they calculate for you and do it all yourself from scratch if you wanted to, a thing I believe you _can_ do in European countries that generally calculate your income taxes for you?
Paid mine off in 2008. I have been standard deduction ever since. My taxes take about 30 mins to do with one of the major bits of software. I could go real cheap and just copy the numbers around from year to year and do the math and mail it in. But at this point it is getting more and more silly that the IRS does not just mail us a post card with a link saying 'is this right?'. Pretty much all the ways I make money have a 10 form that they are filing with the IRS. I am fairly sure I am not alone.
Unless you are a homeowner at an expensive metro. It used to be basically every homeowner, but the changes in 2018 led to a massive reduction of people itemizing. The standard deduction went up a whole lot, and along with it, the deduction for state and local taxes was capped to a relatively low number. So if you owe, say, $200K in your mortgage, chances are that you are going to need non-trivial bonus itemization to get to the cap, when in 2016, that was definitely enough to itemize.
In practice, about half as many people itemize today than they did back in 2016.
Since Trump's tax changes very few people itemize - it is very difficult to get about the standard deduction. The average person doesn't even have enough income (the standard deduction is about a third the average income, the odds that someone at that wage level is spending enough on deductible things is small, there are too many non-deductable things they also need to buy).
Of course it depends on where you live - in San Francisco if you can afford a house at all you have enough interest to deduct it (especially at today's rates), but other areas have more sane housing prices and lower incomes.
I think you can still easily reach if you, say, tithe 5 or 10% of your (post-tax even!) income (to a church or other 501-c-3) and have a mortgage and pay property taxes in a major metropolitan area. (Also if you're single the standard deduction is half married filing jointly.) (I didn't realize the personal exemption is gone now too!!)
But a quick google says... according to the IRS in 2022, 139.2 out of 154.3 million tax returns took the standard deduction, which is indeed around 90%. (Looks like up from 87% in 2020 maybe). So, true, defintiely most people, but still 10% not.
It looks like maybe pre recent Trump standard deduction changes (which were phased in), as many as 30% of filers itemized. (Still a minority to be sure).
I wonder if charities have seen a big hit in donations, if the itemized deductions people are no longer taking were an incentive.
"Here is what we think you owe/don't owe. If this isn't what you expect, then click this button to add or subtract deductions. Oh and BTW, we know you owned a home last year so we included that too!" Or, "Hey we noticed you took the standard deduction last year so we assumed based on what info we have that this year might be the same so here is the standard answer!"
> The vast majority of people take the standard deduction, so offering a "here's what we think you owe, but if you disagree feel free to do the full return" form would be a huge efficiency gain.
> Your comment seems like a prime case of perfect being the enemy of good.
And the comments advocating for automatic tax filing seem to be ignoring Chesterton's fence. They seem to be viewing it solely through the lens of revenue collection. However, IIRC, for better or worse, one of the big levers the US government uses to influence individual behavior is incentives implemented via tax policy. It stands to reason that mechanism would stop working if individuals could avoid interacting with the tax rules.
People care about what they're paying in taxes whether they're manually punching in the numbers or not. For most people, you just put the numbers in the right places when filing taxes, and don't consider the policy implications or causes at that moment, because it makes no difference at that point. You consider those effects when voting.
Removing manual filing won't stop people from voting on tax policy.
I know I'm likely better off with the standard deduction, but I still have to check both ways to know for sure that's the case for me. So standard deduction never actually saves me time even though post Trump tax reform I generally take it.
But surely, you're on the cusp of itemizing. Or have dramatically changing circumstances year to year. Otherwise, you're just wasting time.
FWIW, we are in the "on the cusp" boat. Another year or two and our mortgage interest vs principle equation will put us in the standard deduction range. And short of massive changes to either tax law or our income, we'll remain there.
Last year I had lots of investments that I hadn’t previously. This year I sold a home. Next year, I’m planning to get married. The year after that, a new home?
Maybe these are “drastic” changes but they aren’t unusual across the population. Not planning on kids, so that means I’ll have fewer changes than most. But the person I plan to marry has significant changes to income based on commission so I’ll probably be doing taxes this way for a long time!
I wasn't arguing for or against any system. Just wondering how it could work when the government doesn't know about a significant amount of my deductions and I ended up itemizing last year.
> Your comment seems like a prime case of perfect being the enemy of good.
Which makes sense in a lot of spheres where's there's obligations on both sides. Unfortunately, if myself and the IRS come a disagreement about my filings, I can end up in jail or at the very least deal with an expensive criminal prosecution. If the IRS is wrong, then there's effectively no penalty for them.
The government wants it both ways. People understandably have some apprehension about this.
> Unfortunately, if myself and the IRS come a disagreement about my filings, I can end up in jail or at the very least deal with an expensive criminal prosecution.
I think there's a huge gap between facing an audit in most circumstances and those two outcomes...
With current tax code, not taking standard deduction is more of an exception than a rule.
It has to be supported, and you should be able to change it. But there's really no reason today for why IRS doesn't send you "this is what we think you owe, based on this data that we have. Click to accept or add more data". That process would hugely simplify taxes for majority of Americans and wouldn't impact people who have more complex cases.
This is why making it this easy is a win for the government. 99% of the people are lazy and will just let them do it, basically giving them free money.
Less money to Intuit and H&R Block and more in my pocket and my government's is a win to me. I'm all for productive businesses, but I'm sick of these tax companies influencing public policy and collecting rent by solving a problem that they are intentionally keeping alive.
Imagine a landscaper doing doughnuts on your lawn and then telling you to pay him to fix it, and that's roughly how I view Intuit.
That is really interesting. I wonder if they considered Linux too late in development to shift to something platform agnostic, or just decided that Wine was reliable enough for them to depend on it.
It's interesting that anything other than MacOS and windows is even considered at all, even just in the instructions.
The government knows about your main itemized deductions like mortgage interest. Then it can just compare it with your standard deduction and select the one that is greater.
Of course, you might still want to amend that, but as the first pass it can be quite accurate.
How would you know if you're going to take the standard deduction without doing your taxes?
People wealthy enough to even think that their deductions might exceed the standard deduction are not only in the vast minority, they're also wealthy enough that paying for TurboTax isn't an issue because they have their accountant do the taxes.
IOW, you're optimizing for the exception, not the majority case.
Two DINKs who live in HCOL areas and donate 10% of their income to charity should be thinking about itemizing, though. We’re talking 250k in salary or so, right?
Your point being...? What percentage of people do you think fit your description? I stand by my "vast minority" statement, if that's what you're driving at. HN is not the general U. S. population.
Let's not let perfect be the enemy of the good here. Per the IRS's stats, 89% of people take the standard deduction.
For those who itemize, the government usually knows about most the things you're itemizing. I'm itemizing this year because of 3 things: taxes paid, mortgage interest, and charitable donations. The government already knows about 2 of those, so they could send me prefilled forms that are 95% complete (W-2, investment 1099, mortgage 1098, mortgage 1099 and other bank account 1099-ints, my form 5498 for my IRA, property taxes, etc). I'd much prefer only having to fill in my charitable donations. It would change a job that takes a couple hours into one that takes maybe 15 minutes.
By deciding to do it. Whether it's economically rational is another question. I've never calculated my deductions. I assume it's ok. But it's a guess, as I've never checked.
Not all though. I developed admin-phobia since I moved back to France. Being a contractor here is such a FUCKING nightmare compared to UK and US. Sure the US could do without turbotax. BUT AT LEAST YOU GUYS HAVE TURBOTAX
In the case of taxes in the United States this doesn’t really follow because if the government says you owe $x.xx then you have to go through the bureaucracy either way to either pay or dispute the charge. For most people (simple wage earner) TurboTax and other software is just an additional regulatory tax and no different than the government except that it takes money from citizens.
A government has a monopoly on taxation by definition or else it can’t be a government so calling it a public monopoly doesn’t make a lot of sense.
The difference is that if the IRS provided the only filing solution AND adjudicated taxes, there'd be no adversarial tension.
Right now, the IRS is forced to establish some sort of data interchange format and adjudicate incoming tax filings equally, because they're required to work with TurboTax et al. (even if only required from a practical standpoint).
If they also provided the only filing solution, that pressure would be gone.
IMHO, the best possible outcome is definitely IRS-supplied free file + private options, if users would like. Keeps everyone honest and on their toes.
Free filing would by definition be both, as people using it would be unlikely to have separate tax prep services.
Ergo, imagine there's a checkbox option that would apply to 25% of free filers to save them money. How would the IRS free file handle that from a UX perspective? What are their incentives?
Alternatively, suppose a feature used by 10% of filers is broken for the current tax year. How long does it take to get fixed?
Current private solutions are incentivized to optimize those ("We save you the most money!") and fix them ("Our software isn't broken").
And because only the data transfers over to the IRS, all the prep optimization can be done independent of the IRS.
Some of the incentive concerns would be alleviated by (as this did) building this from a different branch of government (e.g. US-DS).
But at the end of the day, it's still the government telling you how much to pay the government. Or as the joke went about the 1040-EZ: "How much money did you make? Good. Give it to us."
The only thing worse than a public monopoly is where you have to navigate both a public monopoly, and a private monopoly, which is how taxes work in the US.
No, not even by "first order approximation" because plenty of returns are done without any software at all, or done by professionals with different software.
It's a competitive market on a stupid game. The market solutions (maybe mostly just intuit) fight to keep the game near impossible for the lay person to play. They generate "GDP" by making it more grievous than it need be.
At least part of this is a symptom of a broken political system (the current process of voting encourages 2 party system which are incentivized to not experiment)
The political system is this way because the cities/urban areas and the rural areas have fundamentally different interests, and the vast majority of the resources and land area isn’t in urban areas.
The federal gov’t has enough power to make either of these groups miserable; and so each is using it to fight out who gets to do so.
Picking one to win isn’t going to stop the conflict, but it could turn it into a shooting war.
> Dozens of companies sell online products to file
They all suck, and in a better society, that number for normal people would be close to 'zero', because the IRS could just send me a bill to attest to and sign.
Yes, the US government generally frowns on tax dodges. Famously, that's how they have put away hardened criminals like Al Capone.
But of course, the dynamics of our current system are such that the people least likely to be able to defend themselves legally are the ones which are frequently targeted for tax dodges. How many years do the extremely wealthy have to dodge taxes before the IRS finally comes down on them? Meanwhile, a friend of mine got dinged for a $500 deduction for unreimbursed work travel and not having receipts (a $2000 fine which she had to borrow money to pay).
What type of contractor? Micro-entreprise is really simple for side gigs, and if it's your main job, declaring as an SAS and getting an accountant makes it (relatively) painless in my experience
Amusingly I live in France and filling my taxes take me a total of two minutes checking the numbers and clicking ok. Really depend of your situation I guess.
I worked in a country that automatically fills out your tax return. Sure, it was nice that the form was pre-populated, but you know what I did? I doubled checked all the numbers to make sure they were right.
Were they? No, my employer had miscalculated retirement contributions resulting in a higher tax bill for me.
So I ended up doing all the math anyways, just like I do in the US.
No you’re doing everything right! The point is that you shouldn’t even need to do anything. The IRS already has your information. Unless youre changing something that they won’t know about (for example not using the standard deduction), then ideally you would get an automated return and possible refund without taking any action.
The point is that I might report something that they aren't aware of. It makes sense to me, the IRS does not know everything and strategically witholding what you know will lead people to report things that you don't know about.
In countries that don't force every citizen to file, you still can report things they aren't aware of and still can do your taxes manually if you choose.
The majority of the population doesn't know anything about their taxes that the IRS doesn't. Why force everybody through a song and dance that only is of service to the exceptions (and a couple very large tax filing corporations who lobby hard against automatic taxes)?
Do you have investments or businesses of any type? Do you itemize your deductions?
My biggest time sink this year was sorting out how to file crypto gains/losses. After two hours of struggle, I found that I had to pay income tax on about 15 dollars of capital gains.
Sure, but that isn't what they are saying, they are saying that the tax code is that you report the gain.
I think most people don't report interest that is below the reporting threshold for the bank either. Doesn't change what the tax code says you are supposed to do.
The 2022 1040 has a line that says "At any time during 2022, did you: (a) receive (as a reward, award, or payment for property or services); or (b) sell,
exchange, gift, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?"
If the answer is yes, but you put no so that you didnt need to file any additional details, thats definitely illegal.
It's not hard if you have simple incomes and deduction, it's just a bloated process that you have to pay to complete (if you make enough money) and you are at risk of penalty if you accidentally fat finger manually copying printed text into a computer since the IRS already knows all the values and will know if you submitted something wrong.
What would be better is if the IRS just sent you the stuff they know and you affirm that it's true. This prevents people from accidentally committing tax fraud and eliminates the need for middle income Americans to pay a yearly fee in order to be law abiding.
> eliminates the need for middle income Americans to pay a yearly fee in order to be law abiding.
Yearly fee? I had to pay for turbotax but I was under the impression that it was because my income is very high.
I don't know, it makes sense to me the way the IRS does it. If I get a massive windfall and the IRS didn't send me information about it, then I would be able to just not file it because I would know they don't know about it. Not so if I don't know what they know.
TurboTax doesn't charge for standard federal income filing, but they do charge for some forms of return, and for state taxes, and for audit protection.
Even with the "free" standard offering, it's been lucrative enough for them to lobby heavily to prevent taxes from being easier, just to funnel the majority of the country through their slow filing flow and try to upsell to all of them.
> I don't know, it makes sense to me the way the IRS does it. If I get a massive windfall and the IRS didn't send me information about it, then I would be able to just not file it because I would know they don't know about it. Not so if I don't know what they know.
Ideally the IRS would tell you what they think is accurate and you'd submit amendments for anything that's not accurate. That's no different than the current arrangement since you already need to report all income, it just eliminates the extra cost and effort for the majority of Americans that don't receive windfalls.
You can't accidentally commit tax fraud. Fraud requires intent. Errors on forms are not fraud.
Yes if your tax situation is simple, the IRS already knows everything. In many other cases (even something pretty common like self-employment income) they do not know, and you have to tell them.
It isn't hard in the simple case. When you have kids and HSAs and education expenses and self-employment income and more complicated investments it gets more complicated.
The tax industry goes out of their way to make it seem harder than it is to justify their existence. You can do the forms by hand (not even a calculator) faster than most tax software - most of that time is added delays to make it seem like the computer has to work hard to do something hard. Unfortunately if you do things by hand you will eventually make a trivial mistake and the IRS will get mad about that.
they really don't get too mad. I do it by hand, sometimes using a calculator, and they just send you a correction. mostly its been in my favor. California taxes are based off of federal, so CA used to get kind of pissy because eventually they would find out about the correction somehow. last year they send me a notice within a couple days of the IRS
In my experience, the IRS won't get mad about that. They'll ask you to correct it, of course. What makes the IRS mad is if it looks like you're actively trying to illegally avoid taxes.
Also, in my experience, the IRS are generally decent to work with. My state revenue department, however, is the opposite of the IRS in every way. They're just mean and vindictive.
There's a lot in this thread about standard vs. itemized deduction, but since Trump's tax reforms, the standard deduction has always vastly outweighed itemization for me, and I believe, most Americans.
The part that causes me the most grief nowadays is the 1099-B; there's a few of required tax inputs related to investments that just aren't captured on that form. (Although in recent years, I've started taking better notes, and now I can just refer to past years' resolutions for repeat scenarios.)
But even just punching in the requisite numbers I think takes me longer than 30 minutes…
Then there just seems to be an annual surprise per year. ESPP sales complicated one year; they're a weird mix of income and gains. I had a stock split occur one year, resulting in a fractional share that was liquidated for some really odd capital gains. Moving has complicated state taxes numerous times due to states with poor definition of what constitutes a "resident". I've been plagued by a number of errors on various forms (including twice on the W-2!).
But the upthread remark — that the IRS knows the answers — should apply to my situation. Basically everything tax-related about me, the IRS already knows. They can just send a bill; if I don't trust it, I can look it over for correctness & perhaps trigger some sort of correction process. (Presumably today, they'd just audit me if I was too far off their number.) About the only thing I think that might cause a discrepancy is charitable donations.
There have been many proposals along these lines, but Republicans in Congress don't like it because they believe making it painful to file taxes will win support for their generalized opposition to taxes.
Then give them something they want, like have the IRS send everyone a summary just exactly how much in taxes they actually pay. Let people know the "refund" they get is not money from the government but rather money the government took from them several months ago and is only getting around to giving back now. Make a clear comparison between the amount they're getting back and the amount the government kept, which for most ordinary people is thousands of dollars a year.
Assuming the problem is actually ideological opposition from Republicans, and not campaign funding, because then it would be bipartisan:
Corporations can't donate to campaigns. Anyone using this to make a point is lying.
That page shows who employees of the companies have donated to.
(And the politicians aren't actually "bought" by it. It's more like they already agreed, and maybe they're being paid to stay politicians instead of getting a better paying less annoying private sector job.)
Employees of corporations donating to campaigns when the dissolution of that company's business model would affect their employment is pretty much the highest degree of alignment you're going to see between corporations and their employees.
And corporations can't donate to "campaigns" but they can perfectly well donate to PACs aligned with campaigns.
> And the politicians aren't actually "bought" by it. It's more like they already agreed, and maybe they're being paid to stay politicians instead of getting a better paying less annoying private sector job.
But nobody said they were bought. It's not corruption if it's legal, right?
The problem is the systemic bias it introduces. Politicians need to raise money to stay in office, so they have to appease whoever has money. So politicians who appease special interests have an electoral advantage, win more elections and constitute a majority of the legislature.
That's the thing you don't read or understand because it's part of the multi-page document full of arbitrary number boxes that you're paying TurboTax to handle for you, isn't it?
How about a simple form which shows those numbers in large typeface and nothing else?
The claim was that the complicated form is necessary to help people pay attention so Republicans would object to getting rid of it. Why wouldn't they prefer a simpler form that shows exactly what they want people to pay attention to?
And it should be required to file a tax return only when those kinds of situations actually apply to you. The majority of the population doesn't actually have those concerns.
There are carefully crafted rules to make things like in-game winnings and frequent flyer mile accruals non-taxable. I think the key rule is that you can't convert the in-game currency to real cash; this is why airlines close your frequent flyer account if you sell miles or offer to give other people your awards for money. They probably don't care, but the IRS does.
How this all changed with cryptocurrency, I don't know.
I think taxes are all about what's written down and what logically makes sense. If you pay someone $1000 to do a job, they have to pay taxes on that. If you invite your friends over and spend $1000 on food that they eat, they don't have to pay taxes on that. I don't know why.
Indeed, there's a size limit on reportable winnings that trigger the necessity of a W-2G. There's also potentially different requirements that trigger tax withholding by the payer.
It's generally $600 for winnings, and $5000 for withholding.
Another asymmetry: Winnings are always included while losses are itemized. Which means if you take the standard deduction you cannot write off the loses, but still have to include the gains.
Why can’t the IRS just tell me what they think I own by April 15th, and then i can add things to it.
My taxes are really simple. I still don’t understand why I have to spend at least 40 minutes every year giving the IRS the information that they already have.
Exactly. “We’ve submitted your tax return for you using the standard deduction. If you’d like to itemize your deduction, please send us Form 1050 Itemized Deduction worksheet.”
Itemized deductions are 1040 Schedule A, and you don't typically file worksheets along with your return (although there's nothing stopping you from doing so).
Itemized deductions are far from the only thing that the IRS doesn’t know about. Almost everything on Schedule C, and RSU and ESPP cost basis would also probably require manual intervention. Probably a bunch of other credits as well, like the tax credit for buying an EV, solar/energy efficiency, adoption, various student-related deductions/credits, etc.
And I think that's part of the problem. I've done my taxes (in the U.S.) manually for the past couple of years (i.e. filling out a 1040 directly, no TurboTax etc.), and the amount of times I've read through some absurd item that is clearly only in the tax code to get the vote of some special interest is depressing. Like most 'benefits', there would be uproar if you tried to take them away now by the people impacted, but maybe they could be moved out into separate programs.
Seems like getting to a point where ~75% of the population didn't need to file would be doable if there was enough motivation for it. If your only income is on a W-2, and your only mortgage / banking / trading is with U.S. companies like Chase or Morgan Stanley, no reason that couldn't all be done for you.
You took me literally. Basically IRS can file taxes for all your details without adjustments. If you want to make adjustments, there should be an easy way to fill them in and be done with them. Donations, tax credits, etc.
Most brokers send all the info to the IRS, but there are some that get wrong cost basis for ESPP (Fidelity looking at you) and so you’ll have to rectify that too. But those things should spit out a number that gets adjusted from the IRS number.
Even taking the standard deduction, I don't think I've had a year in my life where I didn't have additional tax credits and deductions. You don't need to itemize for some very common situations on top of the standard deduction.
yeah it's insane. This past tax cycle, we filed and overpaid by like 3K, using Turbo Tax. Of course Turbo Tax didn't tell us this, and we wouldn't have known except we got a check for the overpayment from the govt about a week or two later!
I'm curious what mistake happened that you overpaid so much and the government caught it? I always assumed that the IRS relies on the tax return unless it explicitly audits you, but I think my assumption is now out of date.
Over the years there have been a few times where I got an additional (small) return due to overpayment. As far as I know, I've never been audited (and I think I'd know if I were).
Our taxes are complicated. We employed a nanny this past year which somehow made our tax due jump up by over 3K. I assume this was a mistake in TurboTax?
Yeah the American system absurd. “We have all the data but you still need to figure it out yourself and if you get it wrong you’ll get in trouble”. The Australian system has improved a lot over the past few years - PAYG (employment), bank interest, and dividends are all pre-filled on your tax return. So all you need to figure out is deductions and other income. I’d still like to see it taken a step further like in the UK where you don’t even need to file a tax return unless you have income the HMRC doesn’t know about.
Most industrialized countries in northern or western Europe have most government systems that are an order of magnitude less absurd than the American equivalents.
You just narrowed your claim down to a very small group of nations in the entire world.
It's like when people say: Europe is so much better at xyz. When what they mean is: Finland is amazing, you know, tiny little 5m person Finland, with very little diversity and a strongly exclusionary (just try immigrating into it as a low-skill poor person) homogeneous culture, it's amazing. The same goes for much of affluent Europe: it's hyper exclusionary, elitist, and often extraordinarily racist against outsiders.
Meanwhile the US is the world's largest economy, has welcomed tens of millions of poor people from the third world over the past 40 years (and that door is still very much open), has the third largest population and is hyper diverse compared to nearly all peers in Europe. Even Canada is drastically less diverse than the US. It's far easier to manage a nation that consists of an overwhelmingly dominant single culture, there are far fewer competing interests or complexities.
A country as large and complex as the US, with that much diversity, and that many layers of government to manage it all (federal, state, local; the US state government system is gigantic in its own right), is going to be a very messy machine. There's no scenario where that isn't going to be the case, no matter where it exists.
The only reasonable comparison regardless, due to the scale, is the US to Europe broadly. The US does just fine on that comparison. Shall we talk about how nice Western Russia is? How about the last 20-30 years of Greek and Italian history? Or is the premise to only refer to the good outcomes of Europe?
France, one of the most emblematic Western European countries, has a proliferation of 49-employee companies because of a boatload of regulations that kicks in starting employee number 50. Some estimates see almost two and a half times as many companies with exactly 49 employees than with exactly 50. Now that's pretty absurd!
I'm a recent immigrant to the UK from the US, and by way of example, I was really looking forward to being out of the American medical system. Then I discovered that the way you make a doctor's appointment over here is that you log into their website or call them at exactly 8am and hope you beat out the other people also trying to get an appointment for that day. Of course, the appointment will likely be just a phone call as triage, and then they'll sort out an in-person appointment -- but good luck if you can't use your phone at work for whatever reason!
What I'm saying here is: Until you've lived in a country, you probably don't know the absurdities of their own system.
Bureaucracies naturally foster absurdity, but the US is solidly middle-of-the road when it comes to absurdities, and only seems more absurd because 1) it's the third-largest country in the world, and 2) it's so often in the spotlight.
Of course, it's good to celebrate specific absurdities being overturned, as is (slowly) being done in this instance.
> Yeah the American system absurd. “We have all the data but you still need to figure it out yourself and if you get it wrong you’ll get in trouble”.
IRS knows all the income data only in simple cases like salaried employees with W-2 forms. If you are business owner or contractor the things can be more complicated and what IRS really knows is a guessing game. IRS is posturing and bluffing that they know everything and put pressure on a tax-payer to voluntary disclose as much as possible about their income out of fear of criminal persecution. Also they will rarely tell you that you "overpaid" your taxes unless it is a simple math mistake.
> IRS knows all the income data only in simple cases like salaried employees with W-2 forms. If you are business owner or contractor the things can be more complicated
If you already can avoid the trouble for 50% (?) of the people who are in the standard case, it's already a massive win.
Exactly. Doing custom taxes could be opt-in. "Here's what we're going to charge you. If you think you owe less due to details we don't have, feel free to file the old way"
I’d be happy with a system like this, as long as they made it very clear WHEN you should do it the old way. For example:
“Our estimate of your income may be too high in certain situations, for example if you are a business owner, independent contractor, or receive income from RSU or ESPP sales where the tax basis reported to the IRS is missing or inaccurate. In those cases, you are encouraged to fill out your tax return using the tool of your choice” (Hopefully with links to some options).
Otherwise, there’s going to be a lot of tech workers who don’t understand RSU taxation paying thousands/10s of thousands of dollars extra in taxes for no reason. (And yes, I realize some may think this is a feature, not a bug.)
It’s often the case that you sell a block of RSU stock, and the broker reports the entire sale as a capital gain (e.g. if you sell $50K, then it shows up as a $50K capital gain on your broker’s 1099). But in reality, the gain should only be the difference between the price it was when it showed up in your account and when you sold it (which can actually be a loss), because the basis is already included in your W-2 as earned income.
My recollection is they report it on a “supplemental information” form, not directly on the 1099. If you just do a naive import in TurboTax or similar, you’ll overpay your taxes by thousands.
The IRS requires your broker to report a different cost basis to you than you are entitled to use. It is government-mandated disinformation, not a misunderstanding.
Simplifying the tax code would go a long way. We don't need to go all the way towards some flat consumption tax, simply eliminating tax deductions, credits, and write-offs would make calculating a person's tax burden much easier.
Don’t deductions, credits, etc allow the government to incentivize citizens to behave in certain ways? Are you implying that it shouldn’t be in the business of incentivizing behavior?
Well yes, I would absolutely say the federal government shouldn't be in the business of manipulating markets and consumer behavior. That was never part of our government design in the first place, unless you consider dealing with interstate commerce disputes to fall under that umbrella.
Practically though, our tX system and economy is much too complicated to be able to accurately say whether incentives through deductions and credits are a net positive. We can say how expensive they are, but how do we measure the value added by pushing consumers in one direction or another? And if we can't measure its value should the government have that authority?
And that's probably the main reason it isnt done. The IRS assumes nearly no one would report extra taxable income if they came out and said all of the things they already knew (and by implication, dont know).
Well I think that depends on what is being provided, most suggestions I've seen only talk about cover the simple case of some W-2s and other income sources already reported to the government and taking the standard deduction. If that's the case then the government doesn't _have_ to provide everything it knows, it would be on you to know if you have income that wasn't already reported to the government and file yourself, and it would be the same as now in that you don't know if they'll find out about your other income.
But also, there's still the risk of getting audited either way. Just because they apparently don't know about some income _now_ doesn't mean they'll never figure it out later.
Right. I was assuming most people would choose the lower of whatever the IRS said or their calculations showed. And that's fine, presumably that would be taken into account on the government side in order to get enough money.
Here we go. American exceptionalism again. No surprise here. It isn’t done because your government is stupid and corrupt. Look at the myriad other examples of this happening in other countries.
Sometimes the US truly is exceptional -- name another country that has more guns than people and, critically, enshrines private ownership of guns in its constitution.
It's what the UK does too - I never had to file anything for taxes if I only had reported salaried income. Even stuff like interest or investments is mostly automatically handled, you often need to be doing something a little unusual in that area to require anything.
And even if you did have some side income to report, the HMRC website had most things in a pretty easy wizard-like form, similar to turbotax or the like, with the things they already knew about pre-filled.
This is how it works in New Zealand; you get a tax statement. You can file if you think that IRD got it wrong, and you have to file if you have income from (for example) dividends, overseas incomes, or similar sources.
But for the great majority of people whose income comes from working for a living, you don't need to do anything to be 100% legally compliant.
I moved to the UK last year from the US. Over here, you only file your own taxes if your income is over 100k GBP -- which is probably a reasonably simple proxy for "your tax situation might be more complicated." No doubt it has edge cases, but it's a nice sorting mechanism for the majority of cases.
IRS knows about my taxes because my employer informed them. If you are a business owner, well talk to your boss about getting the taxes done.
Self employed, business owners, and petite with some investments will still need to do some work.
I'm not saying it's a GOOD reason, but the main reason the government doesn't just send you a tax bill and say, "here, now pay up" is because there are lots of things which are taxed but the government doesn't "see" because they are not (or cannot reliably be) reported. This goes for certain credits and deductions as well. So the only real leverage they have is to tell everyone to get it right or face the possibility of an audit.
Those deductions and credits (mostly) apply to people itemizing their deductions. About 30% of households itemize - the remaining 70% take the standard deduction. [EDIT - since the tax changes in 2018, the numbers are closer to 10% itemize/90% standard deduction]
And most of the common items are known to the IRS... mortgage and mortgage interest, property taxes, state taxes, education credits, retirement savings.
Common items that could be known to the IRS (but aren't necessarily today)... charitable giving, medical expenses, self-employed healthcare premiums.
The IRS could, relatively easily, email/SMS/snail-mail you a pre-filled tax return with the info they do have. If nothing needs updated, you just (e-)sign and provide payment info.
So...? There are 131,000,000 households in the US. Something like 40% of people surveyed use tax prep software (at $50+/year). That's a massive waste of money that society could use on something useful.
Someone asked why it was happening in the US. I pointed out why.
That not everyone agrees that it is a waste, or that society would find a better use for it is of course going to be a matter of opinion. Which some folks are heavily incentivized to weigh in on (to the point it may be a large percentage or all of their net worth), and to others it’s $50/yr.
That's not really true. Itemized deductions are a small part of this, and so are the individual tax credits. Business accounting and post-tax investment are actually the big items here, and are impossible for the IRS to do for you. I'm afraid that if you get a stock grant from your employer, that puts you beyond where the IRS can send you a pre-filled form that is correct.
I'm afraid that if you get a stock grant from your employer, that puts you beyond where the IRS can send you a pre-filled form that is correct.
Sure, but that's a tiny fraction of the population. Nobody is saying the IRS should send you a fixed return. Only that they should send what they have, and if nothing needs changed, great, society is better off.
Lots of deductions and credits are on top of the standard deduction. School expenses, child credits, child care expenses, retirement savings, EIC credits and student loan interest are some very common things.
There's no reason why this has to be the case, though. Brokerages are already required to report lots of things about their clients to the IRS. No reason why "stock grant from employer" couldn't be one of them. (Regardless, these stock grants usually end up as W-2 income, so I'm not sure why you think this isn't covered already. Stock option grants often need some special handling, though.)
In any case, most Americans do not care about this. I'm getting tired of the "10% of taxpayers couldn't fully use this system, so let's not bother" type arguments.
The reason why this has to be the case in terms of brokerage accounting is that there are different ways to account for your purchases and sales of securities that can result in different levels of tax. Brokerages usually allow you to choose one on your 1099-B if you want (despite the fact that this may be hidden). You are only allowed to use one accounting method across all of your accounts. If you only have one brokerage account, they can make the tax-minimizing choice for you automatically, but if not, you have to make sure they use the same method.
Certainly stock grants end up as W-2 income, but unless you automatically sell all of them, your choice of accounting methods matters. Many people I know have at least 2, one for employment-related stock and the other for their own trading. You don't even need options to get an accounting problem.
Also, I think you have a very narrow view of who actually cares about special tax circumstances. Teachers have several special credits. So do students. So do people who save for retirement. Not to mention people who run a small business or a side hustle. This isn't a 10% situation, this is more like 30-50% in any given year, and almost nobody files a bog-standard return every year for their entire life.
It would be nice, however, if the IRS told you about all of the W-2s and 1099s they got before you had to file your taxes. The good news is that you can do this if you file for an extension on your taxes and check an obscure section of the IRS website - many accountants do it.
Other countries just calculate up an estimated bill and it seems to work for them. Is there something about US taxes that makes that solution intractable?
I'm in the UK and there's reporting systems for- employers, pension schemes, savings accounts, charities and student loans- all to avoid most people having to fill in a tax return. Something like deducting sales tax would never be passed as a law because it wouldn't be accessible to most people.
As an analogy, we can say that laundry will never be automated because the washing machine can't separate whites from colours, doesn't apply stain remover, doesn't remove the delicates when it transfers to the dryer, etc. All technically correct, but people stopped caring. People have a financial and emotional attachment to their tax loopholes though.
It's technically possible for tax preparation software to collect information about UI interaction (e.g., revising income downward before finishing) and send that information to the IRS. I don't know whether that occurs, and maybe all tax preparation companies decided not to do it for fear of detection and customer backlash. Still, it seems plausible that this new interest in IRS-hosted free e-filing means that someone became uncomfortable with a previous arrangement where those companies were sending UI data "voluntarily" or "accidentally" to help enable data mining for IRS audits. (Backspacing and decreasing a W-2 income value is probably not of interest, but a pattern of backspacing in something like "Gambling income" or "Gross receipts or sales" might be.)
In my experience, if I underpay my tax, they will come at me and demand penalty and interest. If I overpay my tax, they will do nothing. This is by design, I think.
I’ve overpaid my tax, they told me about it and IIRC I just got one letter with a check in it, I didn’t need to do anything.
I’ve also underpaid and my experience was basically the same (except I had to send a check instead obviously). Edit: and the “penalty” was just modest interest on the underpayment.
Generally, you're exempt from IRS penalty if you do either of:
- pay >90% of owed amounts via estimated taxes or withholdings
- pay >=100% of your previous year's earnings
If you're underpaying by more than that, there's a high chance you're doing so on purpose. Or made a fairly egregious error (in which case, the penalty was probably assessed later upon audit).
And if you overpay, you get a refund, not nothing.
> They’ve already done my taxes so they should just send me a bill and not waste my time
It's absolutely insane that it doesn't work that way. Precompute the taxes owed, and send that to the taxpayer. The taxpayer can then accept the IRS's computations or reject them and file their taxes like they always have.
Yes. It would be great to receive the standard, already filed return, and have time until the Tax Day to file a custom return if you need to.
- Lowers the burden on those who have very simple income (W-2).
- Offers enough boilerplate to start a custom return with.
- Never miss filing your return, no matter what happens to you between early February and April 15th. At worst you'll not receive as much back as you otherwise would.
And then there's the disgusting shell game that IS the entire U.S. tax system, which is the root of the whole problem.
Everyone thinks that they can come up with a much better tax system, and they always start with something super simple that meets their tax needs. But a simple system that meets one person's tax needs is usually not so simple, fair, or efficient for other people. And when you take all their needs into account when you redesign the system...you end up with something pretty close to what we have right now.
For example, try designing a tax system that is both fair and efficient with respect to agricultural income and tech income (this is a fairly common assignment in university tax programs). It won't be simple. And that doesn't even get into how to reconcile the tax treatment of business income with the tax treatment of individuals, or the many ways they earn and spend income, or the complexities of other types of businesses (like manufacturing, retailing, resource extraction, in-person services, etc.).
> For example, try designing a tax system that is both fair and efficient with respect to agricultural income and tech income... It won't be simple.
I love these armchair opportunities for college-level challenges without the admission fees, I'll bite. Step 1: disallow corporation as a legal taxable entity, private ownership only. Step 2: Subtract expenses from income. Step 3: Divide by 10. Step 4: If more than zero, send a check.
"Fair and efficient" in terms of opportunity is easy. In terms of outcome is a fool's game IMO
But what about investments and assets? A car that you bought for the company has a limited lifetime. So its value is slowly decreasing, should that be considered an expense?
What about R&D? We want to incentivize it, so that companies do more of it. Etc., etc.
So you’ve eliminated the entire concept of depreciation? That’d make it effectively impossible to plan or operate any business with front loaded costs.
I'm not a fan of this toy example but... are you under the impression businesses want to have multi-annual depreciation of their assets?
As far as I can tell, all businesses would like to be able to deduct all cash outflows whenever they occur, regardless of whether it's capex or opex. Businesses depreciate across long time cycles because that's what they're forced to do.
As long as they can carry forward losses, don't all businesses want accelerated depreciation?
This is a dangerous path. First this, next the government just sends you the tax bill, without you needing to file (and you can dispute it), and then CBDC where every microtransaction is surveyed and sanctioned (or not).
You don't need "CBDC" for that, you're describing the current European tax system with a VAT. All business invoices are sent through the tax office, but you get paid to do it.
> And then there's the disgusting shell game that IS the entire U.S. tax system, which is the root of the whole problem.
You can generalize this to the funding of the US government. The system obfuscates the stark reality: the US government spends resources faster than it collects them. It makes up the difference it two ways: deficit spending and off-the-books liabilities (SSA and Medicare being the biggest). Inflation is a solution to these problems.
My understanding is that if the US wasn't calling so many shots on the world stage, other countries would be less willing to tolerate us inflating away the US dollars they hold. But as "the global reserve" currency (for now), they have no choice but to grin and bear it, desperately try not to inflate their own money supplies to deal with the loss in value.
This is basically the truth behind MMT. Inflation actually can get you "free" money, but only because you're basically forcing it out of other economies by virtue of holding all the guns and oil.
"that has already been reported to the government"
This statement is mostly true and your point remains but there is a small percentage of Americans who have complex stuff like a Business, multiple non-W sources, investments, Itemized deductions etc. For those, IRS cannot just figure out everything themselves.
A good solution is for IRS to automate those 90% of cases and for the rest, let them file with CPAs and tools as they do now.
Source: I run a business (well 2 now with a much smaller one) and my taxes are never simple. I wouldn't be one of those Americans with straight calculated stuff. I like my deductions and options but also pay a lot to CPA to handle this shit.
Imagine building a tax collection product that attains a 99% satisfaction rating from the people that pay those taxes and then having it get killed by legalized highwaymen. Even today the top google results return dubious totally-not-funded-by-intuit sources such as "the tax foundation".
> regurgitate tax information that has already been reported to the government
How does the government know my non-compensated travel and moving cost, wfh expenses, cash charity donations,etc...?
If people like you get the option to file directly with the IRS, fine by me so long as you don't make the rest of us pay more by losing the ability to play the game and save money.
For both points, that's my point. You get your guy to figure that out for you. Knows tax laws and asks you questions to see what you can prove,etc...I've itemized when a return was guaranteed before to maximize it.
Why can my bank and credit card vendors tell me "up to the second" the status of my account. I use a credit card and get an alert on my Apple Watch. The IRS could have an app that shows it in real time (say up to the day) how much tax you've paid and if they think you'll owe more or get a refund based upon what they know at that point and time and what they know from last year.
Second, why do I need to give my employer my SSN and several forms of ID? Couldn't I share some sort of token that the IRS could give them with my name and maybe a picture and all the instructions embedded on how to withhold, how much to withhold, etc. Maybe it could be a unique identifier per job. I get a picture id but they shouldn't need my SSN. It can't quite be just an opaque QR code but it could be something pretty similar.
Maybe this comment can spur several startup ideas.
Why is it that we can have highly advanced AI, phones, and monitoring systems but so much of what we do is as if we're living before the internet?
Obviously politics (not just a left/right divide, but even at local and budget levels) plays a role. But let's be real, street lights (and cross walk) should be algorithmic and sensor driven, stores should have trivially developed web interfaces (AI can help this just from SAM), SSN being used for identification but also not (and being terrible at it), and so much more. This is literally every industry and ESPECIALLY anything that the government does. I don't want to hear voting online, but please talk to me about DMV online (not literally to me). These things aren't flashy, and maybe that's the problem, but I hate living in both the 22nd century and the 17th at the same time (exaggeration).
That's my wish. I'd think the 70% or whatever the number is that takes the standard deduction could be satisfied with a fairly simple app. Businesses, certain business principals, individuals with higher incomes have more complicated taxes but I would think there could be some standard patterns. I also think that most families not in that 70% (or whatever the number is) probably have fairly similar taxes 3 out of 5 years or 4 out of 5 years. If not, maybe there are some loop holes we should look at or some alterations to the tax code to allow for this. Quick books and peach tree and do an awful lot for a lot of businesses, I know it can be done...
Yeah, I think I know the reasons, or at least some of them.
That particular idea might be a little bit more subversive but why does an employer need to care? Immigrant or natural born citizen, they should have some sort of tax paying relationship with the US federal government.
The southern boarder is being used mostly just for politics right now, but if we wanted to curb illegal immigration I think a big part of it would be some sort of "you're here now" stamp, some sort of criminal penalties for hiring undocumented non-residents, maybe mandatory tax withholding for everybody and then some sort of "you're allowed to work here" token from the feds.
The IRS certainly doesn't care whether you're working legally or illegally, as long as they get their share. The employer is mandated to care by immigration law, since it's against the law to hire someone who is not authorized to work in the US.
> we wanted to curb illegal immigration ... some sort of criminal penalties for hiring undocumented non-residents
This would certainly make a big impact.
> then some sort of "you're allowed to work here" token from the feds
It's called an Employement Authorization Document or EAD, issued by USCIS.
I wrote some tooling for one of the major tax preparation firms to import returns from our competitors into our system, so you wouldn’t be locked into one provider or another. It was a fun project, but it would be better if it wasn’t necessary!
If the government destroys jobs: it's creeping communism. If the private sector destroys jobs (e.g. via automation): it's innovation and the free market at work.
I wonder if a politician could get away with calling these "bullshit jobs" in response.
I paid ~$100 to file my taxes this year. At the end they said because I had one particular form that I couldn't file electronically, and I would have to send it in. So I had to print everything out, write checks, package everything up, visit the post office, and check that the letters arrived. I still had to pay full price of course.
Pro tip: If you have a tax bill over a few thousand dollars, sign up for some credit cards with big fat bonuses just to pay the taxes, and you can easily make up the $100. When the system of {government, financial institutions, credit cards, etc.} sucks, shove it back to the system.
Obviously, calculate whether it really works out in your favor with the credit card payment fees, but in many cases it will.
The credit card fee is around 1.9% (e.g. Pay1040), most credit cards will fall somewhere between 1-2% cash back which will make up for the fee alone without even considering the sign up bonus.
Example: Chase Ink Unlimited[0] has a 75K points ($750 at minimum, more if you have a Preferred or Reserve to transfer to; was a 90K/$900 offer up until tax time this year) bonus and 1.5% cash back. It's free (untaxed!) money to pay your taxes.
Nope, not so fast. Do your research before making claims, please.
For example, if you have to pay $15K in taxes, you can sign up for a Chase Ink Business Preferred card, pay the $15K+1.85% = $15277, get the 100K bonus + 1X points on the $15277, which puts you at 115277 points, which is worth 1.25x in travel, which puts you at $1440 worth of air tickets or $1152 worth of cashback.
Subtract the $277 extra you paid, subtract the $95 annual fee for one year (before which you'll cancel the card of course), and that leaves you with a net return of $1068 in air tickets or $780 in cash.
There are quite a few other cards that you can come out ahead in as well, depending on how much tax you owe.
This is what we called premature optimization. If you owe big money on taxes, spend your energy and effort to figure out how to reduce that, not on credit card points.
If you are on w2 and owe big taxes, then you are intentionally under withholding. Unless you won IPO or buyout jackpot, then spend your time planning your retirement, not credit card churn (unless that’s your plan all along).
Nothing wrong with churning, but it's not within the context of this post. Your goal is to churn, tax happened to be one of the venues. But for most people, churning is the wrong approach because their taxes are the biggest issue.
> If you are on w2 and owe big taxes, then you are intentionally under withholding.
No, many W2 people also have investments and capital gains, and it's very easy to owe big taxes without under-withholding.
Also, if your W2 income is, say, $500K, it's not out of the ordinary to owe another $10K or $15K even if you don't intentionally under-withhold. It's not within penalty territory but more than enough to get a sign-up bonus or two and get a couple thousand of it back in cashback, air tickets or hotel stays and things you'll use anyway.
No. This is not premature optimization. I have all the money to pay the taxes, it's just that I can actually come out ahead by paying with a credit card, paying it off right away, and then taking the points and sign up bonuses on multiple credit cards.
If you owe $20K in taxes, you can totally sign up for 3 or 4 cards and reap all the bonuses in one fell swoop. 2 payments per processor, PayUsaTax is 1.85%, Pay1040 is 1.87%, as long as your sign-up bonuses can beat those numbers (they easily do on many cards, see my other comment below), you can get 4 sign-up bonuses easily.
I already am doing everything I can possibly do within legal bounds to reduce my tax bill. 401K, IRA, credits, you name it, I have it. The credit card thing is just at least getting my cherry back after the government took my cake.
Nope. States are all their special snowflakes when it comes to taxes.
Many years ago, over a decade now, Virginia had an incredibly easy and free tax filing system. H&R block got one of their people elected for one term and they quietly killed it off and now we have one of the highest filing fees in the country.
What I don't understand about these programs is the added income clause. In California the state provides a free tool to file state income taxes (CalFile), but you can't use it if you make over $230,000 a year. Does it really make sense? It's similar with the federal free file program I believe.
You would think they would want to encourage high income citizens to use their tool so they can control the deductions/credits/process.
Agreed, but I don't see this as a service as much as a tool to perform a mandatory task. I don't WANT to do my taxes, I am forced to. At least don't deny me a tool because I pay the government a higher share of my income.
It's probably more-so that above a certain income threshold, your tax return becomes exponentially more complex.
Free-file is useful when all you have is 1-2 above-board wage earning jobs, maybe with a 1099 contract job where the employer is nice nice enough to pre-fill the form out for you.
Once you start dealing with non-trivial amounts of dividends, interest, securities, partnerships, real-estate, you really do need a professional to keep things organized.
I get that, but why use income as a proxy for complex tax items? A W2 that takes home 400k using standard deduction for example is easier than someone self employed with several deductions that makes 100k.
> above a certain income threshold, your tax return becomes exponentially more complex
For some people. A person working a single job as a programmer earning $300k in straight W-2 income (no RSUs, etc.) does not have more complex taxes than a person earning $100k from a combination of their podcast + a few rental properties. There's no logic to means-testing this kind of service, where there would be for feature-testing (i.e. "Does all your income come from your job?").
If you sell them it gets more complicated because your broker is for some reason forbidden from reporting the correct cost basis even though they know it.
I make a lot more than that, but as long as I remain a simple W2 earner it is still ridiculously easy to file taxes and I shouldn't be charged extra for it.
If you're curious why, it's because of the California itemized deduction phase-out, line 29 in the instructions below [1].
CalFile only cares about handling "simple" items. Other notable exclusions [2] are capital gains, health savings accounts, Schedule C, Schedule E, and Roth IRA conversions and distributions.
FWIW I've used calfile with capital gains and it worked fine, I was able to file properly and it gave me the same numeric results as TurboTax. HSA gains/dividends can also go in with your regular income, since California doesn't recognize them with any sort of special tax treatment.
One of the calfile devs shows up on HN every once in a while. I got the feeling that the real impediments were more bureaucratic than on the technical or accounting side of things.
> What I don't understand about these programs is the added income clause.
Lobbying by the "big tax preparers". Higher income individuals are more likely to have more complex returns and/or be more willing to part with $149.99 to TurboTax to do their taxes. TurboTax (and others like them) don't want to miss out on that gravy train by letting the IRS let those folks file for free.
In the UK you don't have to file at if your income is under £100,000 (assuming you are employed by a company that does PAYE (pay as you earn) - i.e. tax is deducted automatically from your payslip - and you don't have any other sources of income which is probably 99% of people) - after 100k you have to file electronically (although someone can do this on your behalf - I don't think postal filing is possible any more).
For what it is worth, the UK online filing is actually pretty good these days. Modern UI, and the process is tailored via a few "wizard" type questions initially so you are only shown the bits you need to fill. It can get a bit confusing at times though just due to the tax laws themselves and the terminology etc, but the system for filing itself is pretty good.
Thanks to onyone on here (and I bet you are on here!) who is working on the gov.uk stuff - it is generally pretty good.
The one thing missing is automatically calculating your tapered pension allowance after rolling over unused, based on your previous tax years - that's why I get an accountant to file mine.
For what it is worth, even with my medium-complex tax return I have had great results with freetaxusa.com for the past few years. The first couple of times we used it we ran the taxes through TurboTax and FreeTax at the same time and due to better UI the FreeTax version was faster and less confusing. That said, at the end of the process after entering all of the same information in the same places the TurboTax one did offer about $50 more in returns for unexplained reasons (The calculated figures were just plain different even with the same inputs, and doing the math by hand we got the FreeTax figures), but would have cost me $60 to use so we went with FreeTax instead. The second year we did the same thing and had a similar result so this year we didn't even bother.
The process is still way too hard and confusing, but at least it feels like I'm feeding one less parasite this way.
Yes. And green energy credit rollover. Also children and tax deferred savings accounts. My wife is also a self-employed contractor. FreeTax was able to handle all of that, albeit that some parts are still confusing. Most of the confusion comes from the contract work, but some of that is because she is actually working for a company that classifies her as a contractor to avoid paying benefits and taxes.
I've used freetaxusa for 3 years now and have the same positive experience as the parent poster.
And yeah my scenario includes investments. off the top of my head my return featured:
* income from 2 employers for the same person
* income in 2 states
* kids and the stuff that comes with that (child tax credits etc)
* capital losses (it's that time of the business cycle :< )
* interest (US treasury products)
* dividends
* mortgage stuff
So if tons of americans can just do a 1040-EZ, then I feel like my usage probably covers like 99% of the remaining folks (which I would characterize as "I could do a 1040-EZ but I have kids and stocks").
There's many nice and cheap options out there. Please, if you value basic democracy, don't give money to Intuit or TurboTax - not a dollar, not a penny. But do click on their paid ads whenever you see them and just close out after the page load. That company needs to be dismantled brick by brick, byte by byte, and deposited in the dustbin of history.
Ignore the "free" claim. Instead compare the normal price. Turbotax normal price if you're making north of 200k is what? like $150? They're going to do a deceitful hustle to try to get you to pay it like some seedy online scammer.
The other players in the industry price their competing products at $15-$20. They're upfront and there's no hidden costs.
Intuit is an extreme outlier and charges an outlandish premium to fund their dishonest lobbying efforts, lawsuit settlements for their countless crimes, invasive advertising and opulent demands of their shamelessly corrupt C-suite.
I did OLT again this year. Due in part to how many click throughs they require if you aren't paying or doing state taxes through them, and due in part to significant personal distractions this year, I didn't notice that I actually hadn't filed until after April 17th, despite finishing everything but the final click-throughs in early February.
Fortunately I'm owed so shouldn't be paying any penalties for filing late. But it's still annoying.
I'm looking forward to an IRS free file system that won't require 5+ click-throughs to submit.
Another vote for freetaxusa.com. The only complexity for my Federal returns is accounting for both refunds and taxes due to filing state returns in two states (as well as some 1099 income), but they handle those exceptions well.
For years I kept a Windows VM around just to run whatever the cheapest tax return software was for that particular year.
This year TurboTax apparently made a mistake. The tax calculation showed I owed tax and I submitted payment for the reported amount. IRS sent me back a check later for overpayment based on the reported tax filling by TurboTax. They didn't explain where the error was; it's just that TurboTax made a bad calculation somewhere.
> I've paid tax specialists in the past far more with worse results.
This was the year I decided to compare freetaxusa with a paid professional. Maybe it's just that my taxes aren't complicated enough to warrant a pro, but I'm not making the same mistake again next year.
I did both freetaxusa and TurboTax and all the errors came from the supposed smart input things from turbotax.
It almost seems like its doing some pdf scan with errors underneath when i dont trust it anymore. Maybe 1 day when they have proper api read access or something.
My taxes have been getting more complex every year, and after this year I no longer trust TurboTax. There was a situation where Turbotax did not recommend a tax form to me, despite me answering questions in such a way that it was clear the tax form would have been impactful and applicable.
After I filled out all of the tax information my taxes were clearly off many thousands of dollars. I had to review my tax forms, do research, talk to an accountant, and then specifically request a tax form number in the help bar of TurboTax.
I don't trust anyone! TurboTax gives me one number, my accountant gives me another, and my by-hand version is yet another that my accountant comes around to eventually. The sad part is that each party is figuring out something unique that the others didn't because it is all so complex. Each route prompts different questions, which, together, make things more accurate. I hate it.
I also switched to FreeTaxUSA this year. Same as in your case, TurboTax got the bigger refund (I was able to figure out why, in my case) … but the extra refund was completely eaten away by the higher cost. I.e., I ended up with more money with FreeTaxUSA, even though the initial return was of poorer quality. (We caught the error and it was corrected anyways … so … yeah.)
There was a state tax error, I think, in TurboTax's return. The FreeTaxUSA got that particular item more correct. (It was a bit of a debatable item, though.)
IMO TurboTax can't justify its price, vs. FreeTaxUSA.
That's going to be pretty exceptional at the scale of most Americans. Even here on HN, I'd wager that's the exception: you need to be working at a ISO-awarding startup, have your ISOs vest, and have your company be doing well enough that exercising them seems like a sane fiscal decision. (… or, well, I suppose you can #yolo.) I've worked for startups for a decade, and I've yet to run into that. (Particularly since employers hold the view of "getting a raise == changing jobs"; this pretty much fixes options' value at $0.)
Mostly off topic, but every time the subject of US taxes comes up I can't help but think about Tom Clancy's Executive Orders. (Spoiler coming) At the beginning of the book the entire US administration except Jack Ryan is killed in a terrorist attack, leaving him President and with the entire government to rebuild. Later in the book one of his advisors tells him something like "This is the only chance in History we will have to make all the hard decisions, all the hard choices we've been too afraid to make. We need to completely overhaul our tax system. This is our chance".
As the years go by and all these plans are killed one after the other I realize how right this guy was.
Wait what? Here in EU I've been filling out taxes for years electronically. Form and automatic guide is provided by our country.
Btw should I mention this is mandatory only for self-employed. If you're an employee, it's required by law that your employer must provided you a free service of filling the taxes and everything for you.
In Portugal, every transaction should, by law, be sent to the tax authority. Every employer should also report what paid to their employees and also retain in source part of the income
Everything is then setup centraly by tax authority which enables the process of submiting tax reports being automatic for most or either, if you have a more complex tax situation, taking you a couple hours tops to self-fill and submit.
It's rather surprising how progressive USA can be in some fields but so far behind in others...
> every transaction should, by law, be [reported to the gov.]
Conceptually, and in principle, this freaks a lot of Americans out. But the burden of not doing it is exceeding the alternative, I think. While it may be progressive to automate tax filing, having the government know everything about your financial transactions without proper cause is not considered very progressive (I guess it depends on what you are trying to progress towards).
It's the only (that I know of) way to avoid tax evasion and paralel economy.
There are incentives (tax deductions) that are granted to citizens who ask for invoices with their fiscal details
It is indeed progressive because it unburdens citizens from a massive yearly headache when submiting taxes. It's progressive because it avoids physical printing of receipts, thus reducing waste and paper consumption. It is progressive because less tax evasion means more taxes to apply in free healthcare and social security.
Having people not dying because they can't afford insurance, or being restful that the state will cover up part of their expenses if they can't work (for eg: if they have a flu and can't work for a week) seems pretty progressive to me and a good tradeoff for leting the government know about a few purchases you make.
Also, if you want go paperless, your bank also knows about all your financial transactions and I don't see people caring too much about it as they care with government...
Some notes about the official system in Germany called "Elster"
1. Sign in via chip card or certificate based authentication for which the activation codes come in the post.
2. All forms are neatly laid out and guide you through the process of filing them, the quality of the frontend is really top notch, they even have a dark mode.
3. All insurances (health, life etc.) and wage statements have already been submitted and you just import them to your filing for that year, there's no guessing on what the correct deduction should be etc.
4. You add in your extra deductibles and submit, you'll have a response in the post within 2-4 weeks.
5. If anything is wrong I can call my dedicated guy at the local Finanzamt, I've had the same tax official for the last 10 years.
6. I still use tax advisors for some years because they just know more tricks then I do, and the legalese German is a bit of a pain to grok.
7. Best of all there's no requirement to do a yearly tax statement if you work a normal job.
Australia is very similar to this, with the exception of activation codes in the post. Australia is pretty digital-first for their services, so you just sign in with your government ID and navigate to your taxes.
Everything is pre-filled. If you have no additional deductions to add in, taxes take around 5 minutes total to file. They have a fairly robust banking system as well so any additional tax you have to pay takes around 60s to send through any bank's mobile app.
The US basically has a privatized version of this.
Pretty much all I need to do is upload a 1099 for my bank account interest & cap gains, everything else is autouploaded.
The main difference you have to realize is not that our system is actually super shitty, we just have 4x the number of people to complain about things.
In the US, if you fail to file then you won’t receive your EITC. In practice, in the US poor neighborhoods are littered with scammy tax preparers for this reason. I’d call our systems substantially different.
I bet the SEO, dark patterns, and advertisement bullshit by Intuit et al. is going to be ridiculous if this releases to the masses. I bet they can get the IRS tool on page 3 of Google/Bing with enough effort
I hope they use a ".gov" address instead of something ridiculous like "freefilefillableforms.com" which looks inauthentic, complete with GoDaddy TLS certificate, even though it is the official version.
The only thing that sucks is that HR Blocks and they’re equivalent fill what otherwise would be a vacant or slot machine spots in many neighborhoods. Either way, good riddance.
The IRS has no incentive to make sure you get all the deductions you're allowed. They don't have incentives to make sure the software works well under load and at scale. Whatever they put out will likely be half-baked, and the software will degrade rapidly because the tax laws change each year.
I suspect, that given the currently complexity of the tax system itself (rather than the filing, which seems to be pretty straight forward), the private based system saves the tax payers money each year over any system the government could create.
Defeatism. Every other civilized country (and US states) manage to do it, and IRS has always been helpful and knowledgeable if you ask them. They've been using electronic systems for several decades already.
Oh, and USDS is involved, so shouldn't be a contractor shitshow.
Obviously, what the tax preparers are afraid of is that the IRS could provide system that works perfectly well for a large majority of their customers, leaving them only the people with more complex needs, or need to manage a lot of deductions, etc. No one would be forcing you to use the IRS system if you think it doesn't work for you.
Yeah, I know, tax money going for stuff that other people might benefit from more than we do ourselves, the great tragedy of our times. Never mind that any system that improves compliance could raise more money than it costs.
Would you prefer to pay even more for somebody filing by paper?
That's our current system. You can pay nothing to file, but it means that the government then has to spend a ton of resources on managing pieces of paper. I'd prefer for staff time to be spent going after fraud than trying to read bad handwriting.
This likely will depend on the administration. With the ACA, for example, you see Democratic administrations try to get more people to take part in receiving subsidies and GOP administrations not wanting to put additional resources towards advertising them. (Not trying to get into a debate here on whether that's good/bad.)
In this case with the IRS program, the WaPo article even notes about the Biden administration wanting to "better serve low- and middle-income Americans entitled to a bevy of credits." As in, they want to make sure folks get all the deductions (and other benefits) they're allowed.
Edit: Let me also add that many people use paper forms because it's free (or other reasons). There has always been a publicly-funded version of a way to pay your taxes. But because it's paper, it's been very expensive for the government to administer. This also incentivizes the IRS to keep this system updated each year.
Meh it's rare, but the IRS does occasionally pay people interest. Usually it's of the "we were reviewing taxes and you overpaid by X amount so here is (1.03)^(years)×x." Still nonzero. Happened to me. https://www.irs.gov/payments/interest#pay
Does the IRS actually know what everyone owes? I know it's true for W-2 employees, but what about everyone else?
I've always had this feeling that you could ask the IRS what they believe any given SSN/EIN owes and they'd be able to tell you (not that they would, but that it's already calculated somewhere). I don't know if this actually true though. I know almost all W-2 information is sent electronically. They know about most 1099 transactions too. But is all this information pre-compiled against someone's SSN, or do they only run that calculation as part of random audits?
They know when you don't pay enough, so they have to know what you owe. All of the forms we receive (e.g., W-2, 1099) are transmitted to the IRS. They can use them to determine if a tax payer underpaid.
I know this firsthand because a broker transmitted proceeds without transmitting a cost basis, resulting in a scary letter from the IRS a few months after I filed.
The problem, as I understand it, is that the IRS' technology is very dated, so processing is quite slow, hence the months-long wait between filing and a CP2000 letter.
> Does the IRS actually know what everyone owes? I know it's true for W-2 employees, but what about everyone else?
Not quite. The IRS knows the income that is reported, and the taxes you have paid.
It doesn't know which credits and deductions you qualify for. It can guess based on your previous returns, but it isn't accurate and needs to be updated annually.
Once you provide your credits and deductions, the IRS can calculate what your tax liability should be vs what you actually paid.
The fact that we have to report anything about our personal finances to the Federal Government is a violation of the 5th Amendment. The fact that they've forced employers to be their snitches is even more gruesome. Isn't it a sure sign of fascism when corporations and government work hand in glove?
If you are taking the Fifth on your taxes ("No person ... shall be compelled in any criminal case to be a witness against himself") you might want to reconsider your life choices.
> The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.
Actually, it doesn't: Congress already had the power to levy income taxes. The power to levy an income tax predates the 16th Amendment. What the 16th Amendment did was to explicitly overturn the Pollock SCOTUS decision, which said that a tax on rental income is basically a tax on property, and a tax on property is a direct tax which requires specifically apportionment among the states per the Constitution.
"The IRS currently refers people seeking no-cost filing options to a consortium of companies that provide free e-filing for taxpayers below a certain income level. Though 70 percent of taxpayers qualify for those products, fewer than 3 percent of taxpayers use them, according to a Government Accountability Office report."
This low uptake absolutely has to be one of the impediments to a rollout of a free IRS-run tax service. The argument is simple: why should we invest resources in expanding our free services when taxpayers don't use what we already make available? Is there data to support the notion that usage would meaningfully increase if we supported 100% of filing cases? (I would expect the opposite to be true; as tax situations get more complex, filers have more incentive and means to hire specialized help.)
It would save taxpayer dollars if we encourage folks filing by paper to do so electronically. Administratively, having the agency staff folks dealing with paper takes much longer.
This is because every member of that consortium uses some combination of dark patterns and nonsensical restrictions to divert users away from the free option towards their pay options.
Propublica did a report on this (linked several times in this discussion) that showed how difficult it was to get to the actually-free version of TurboTax.
> why should we invest resources in expanding our free services when taxpayers don't use what we already make available?
It's not a service. It's an obligation. You want my money? Why do I have to find a "service" to get you to take it?
If you've never used one of those services, you should. Some of them have gotten better only very recently, some still look like fly-by-night scam operations that are trying to filch your personal information. The old adage "you get what you pay for" has never been more true.
> Is there data to support the notion that usage would meaningfully increase if we supported 100% of filing cases?
Yes. The billions of dollars spent lobbying the congress to prevent this very thing from happening.
That's honestly great for you and your family, but it also probably means your notions on the impediments to welcome uptake of free filing solutions for people outside of this class are out of touch with the actual problems experienced.
Personally, yes. But I was using the data from GAO from TFA:
> Though 70 percent of taxpayers qualify for those products, fewer than 3 percent of taxpayers use them, according to a Government Accountability Office report.
There's something other than "free" and generally blaming lobbyists that's preventing people from using these products. Without understanding that, it may not make sense to roll them out more broadly (although I do think that should be the goal).
The software is nice and all... but the real problem is that the tax code is just way too complex. If you have properties, RSU income, other investment income, W2 income, and have to deal with multiple states you can have three different CPAs come up with three different numbers.
At the end of the day, if you're a billionaire earned income is a teeny tiny part of your earnings and most of it is kept unrealized for tax purposes. As a result, the doctor or software engineer ends up bearing a 50+% tax burden while ultra high net worth individuals are lucky to pay even close to the LTCG rate on all their income.
The tax system is oppressive under the guise of being "progressive" but really it prevents social mobility.
The number of engineers making 500k USD per capita is a rounding error. Social mobility in the US is not great despite the purported American dream. Just because one can be wealthy from any background, the statistics prove you're unlikely do do so. The needle for social mobility has moved significantly globally since the times of kings and aristocrats.
The lower hanging fruit is to fix the filing method.
The government has all of the data available to them, they should be able to send you a pre filled tax return that you can amend for whatever reason. In 98% of situations their numbers won't need changing and filing can be a 30 second process. I believe that's how it works in most other countries.
Of course there are powerful lobbies who want the tax process to be painful and that's why it doesn't work like that currently.
> properties, RSU income, other investment income, W2 income, and have to deal with multiple states
That's a problem but not the main problem. That's less than 20% of the tax paying population. The majority of the population is mostly 1-2 jobs & may be a house.
You all are so cute thinking the government is going to perform this function when in reality they are simply going to choose a third party to outsource to.
Probably without even giving Intuit a chance to bid on it. Not that I like Intuit, they suck IMO. But I do think a vendor selection process such as this should be an open one. Instead we will have more back room-brokered graft.
Because it's largely a boring coding task that requires painfully complete understanding of stupidly obscure tax codes, running research into tax courts to see how these codes have been interpreted into law, etc. I'm not sure about the US, but other countries have certification that must be passed before they're even allowed to sell/provide their product to meet the government tax guidelines.
It's incredibly complex, it changes every year, there is huge amount of gray area, if you do it wrong and the customer gets audited and fined by the IRS there is a possiblity of liability (regardless of clauses such as "AS IS" et c.)
I was considering the same question this year. I've been doing mine with freefilefillableforms (basically just an online version of paper) for several years and have gradually been getting better at it.
Here's my breakdown of what took the most time/stress (I didn't use a stopwatch, so it's heavily impacted by how it felt):
2% creating a spreadsheet that did the simple arithmetic to add up sums for investment boxes and that did the final tax calculation
90% spent trying to understand/fix one stupid mistake with an HSA account that was very confusing in the tax code. I am nearly certain that TurboTax wouldn't have helped.
5% reviewing all our other accounts, saving copies of the statements, and inserting relevant values into a spreadsheet
3% copying and reviewing my copying of other numbers, including the long stupid EIN numbers from W-2s that I miscopied and caused the IRS to automatically reject my return
... and here are my conclusions:
* The thing I personally would most love but don't believe is easily possible is a way to avoid all the mistakes copying and to simplify some of the data collection and staring at 1099s from different accounts that arrange the boxes slightly differently, but I can see why this hasn't really been automated in an open source way. While some sort of image processing or by trying to scope out APIs with the financial institutions might help, it's hard to envision an open source project that would do this.
* I actually value tax time as a time to review accounts and finances. So even if the data collection stress was reduced, I would still want to have a good feel for the numbers.
* The most serious problems I seem to run into never feel like software problems. I have had problems like the HSA issue in the past with turbotax and the "helpful" UI can only do so much to answer tough questions.
* Last year I filled out the Qualified Dividends worksheet by hand, the spreadsheet is a million times better though. It's basically the same thing as those online calculators, but I wanted to be able to see what calculations it was doing and review it and also not put my tax info online.
* Overall, what I'm most inspired to do would be to share the spreadsheet or a similarly scoped program and document/continue to refine my process for entering and collecting data. Working towards an end-to-end solution feels to me like a loser, at least to start off. Modular seems like the way to go. Solve one problem at a time. There is already an https://opentaxsolver.sourceforge.net/. Haven't tried it out yet, but I feel like it isn't what I'm looking for.
are they going to collect data as you enter things into the interface and scrutinize behavior? I kind of like how a third party will wait until I am good and ready to send data over to the IRS
582 comments
[ 519 ms ] story [ 1367 ms ] threadThe I.R.S. specifically notes that there is no limit on overall deductions, and hasn't been for years. https://www.irs.gov/newsroom/irs-provides-tax-inflation-adju....
However, there are now limits on individual deductions that didn't previously exist, like the SALT cap of $10,000. It also appears you were affected by the cap on the (loan) value of homes which for which you could take the mortgage interest deduction, which was lowered to $750k from $1m by the TCJA (meaning, if your home is worth more than $750k for loan purposes you can only deduct the mortgage interest attributable to the first $750k of the loan), or by the elimination of a number of 2% items (items that pre-TCJA could be deducted only if they exceeded 2% of your AGI).
This is...incompletely stated...the only $10,000 limit when itemizing is on SALT taxes (state and local income and property taxes). There is no $10,000 limit on deductions in general.
And indeed, the IRS itself states "For 2023, as in 2022, 2021, 2020, 2019 and 2018, there is no limitation on itemized deductions, as that limitation was eliminated by the Tax Cuts and Jobs Act." (https://www.irs.gov/newsroom/irs-provides-tax-inflation-adju....)
The increase in the standard deduction means that it became more beneficial for many taxpayers that used to itemize. But many things that could be itemized in the past can no longer be itemized, which is probably what affected you (however, due to the way the TCJA was written, that prohibition only applies until 2025 unless extended by Congress, which will depend on who wins the 2024 election).
And then there's the disgusting shell game that IS the entire U.S. tax system, which is the root of the whole problem.
But... didn't Congress pass some corrupt legislation years ago that made it illegal for the government to set up a tax-filing Web site? What happened to this: https://www.propublica.org/article/congress-is-about-to-ban-...
[1]: https://en.wikipedia.org/wiki/Taxpayer_First_Act
https://www.congress.gov/bill/116th-congress/house-bill/3151
Norquist himself, and his organization Americans for Tax Reform, believe that making tax payers go through the process of preparing their tax return forces us to audit our comfortability with paying taxes[0],[1]. If, on the other hand, we just signed off on numbers that the IRS provided us every April, we'd be less aware of, and therefore less likely to protest, increases in taxes.
This isn't a subtle, arguably-the-cruelty-is-the-point sort of situation, this is a I'm-not-using-anesthetic-because-I'm-concerned-you-aren't-sufficiently-afraid-of-the-thresher-that-just-cut-your-foot-off-when-I-ran-you-over-with-it. I'm not a big fan of paying taxes, and I don't like it when my taxes go up. But I already feel that when I look at my paystub, or pay property taxes. The whole effort to make tax returns harder so people hate taxes hinges on the idea that most people are completely unaware of taxes until April 15th rolls around. It's cynical in the extreme, and that's really off-putting to me.
0. https://en.wikipedia.org/wiki/Americans_for_Tax_Reform#Oppos...
1. https://govinfo.library.unt.edu/taxreformpanel/meetings/meet...
Unless you’re cutting a check in person you’re arguably not feeling it as much as you should.
It’s like how replacing cash toll booths with electronic debit hides the true price you’re paying on the highway.
If we ever reach a point where the IRS just tells you what they think you owe, they could include the same summary to placate the Norquist types (who undoubtedly will then start complaining about something else).
Literally all Norquist is doing is making it so for about 2 weeks a year, what little free time I have after the kids are down for the night is spent in tense almost-argument with my wife as we seek out all the places our employers have secreted the tax documents they already provided to the IRS. Its such a colossal, pointless waste of time for people who have a simple tax situation.
I have never, not once, looked at the numbers produced by performing my tax return (which, again, the IRS already performs so they can double check my numbers) and thought "Thank you Grover Norquist for keeping me aware of how much my government is costing me!". Because I am already made aware of that when I get my very first paycheck from a new job.
Speaking of toll booths vs electronic debit, when I lived in the Bay Area, I had to commute from east bay to west bay every day. For the first 4-5 months, I was paying cash, because in my scant spare time, I hadn't had time to get transponder and direct debit set up. I was paying $35/week. I didn't become less aware of that cost when I switched to the transponder, because the actual cost was time. Time is something I have very little of, so adding friction just wastes my most limited resource.
Using my most limited resource to make sure I'm aware of how the government might be using slightly too much of my like 10th most limited resource is a waste of my fucking time. Thus, I'm angry not at the government for potentially wasting my money, but at Grover Norquist for wasting my time because he thinks I'm too fucking stupid to realize what's happening.
Taxes don't reduce your purchasing power insofar as everyone else also has to pay them, so your relative amount of post-tax money is the same, and the tax system is progressive, meaning your relative position is actually a little better.
Remember, money isn't real.
https://en.wikipedia.org/wiki/Money_illusion
You just proved my point without even realizing it.
When you were forced to pay cash, they were forced to show you the price. You even remember the amount now, presumably years later. If they could have you pay cash without seeing the price I’m sure they would. If the price had changed from week to week, you’d immediately realize it because the amounts you’d interact with would change.
But that’s only possible with a purely digital system. As all the numbers happen behind the scenes.
Ask yourself this, why don’t any of those automated toll booths show the amount you “auto paid” rather than just “Ok!” Or “Paid!”? It’s because they explicitly do not want people to know what they are paying so they can raise the rates with minimal flak.
Or maybe it's simpler to just say paid and they did that. I'd wager that they're well aware of push-back over fee increases but still do it anyway, because monopoly. And the roads need the money.
On that note, the real fun is going to be about how do we pay for the roads once the majority of traffic is not pay fuel tax...
If the intent was to get us paying without realizing, they'd add additional incentives (like discounts) to getting the transponder than the fact that its simply (and obviously) faster.
You're constructing this straw man where the price at the register is murky and ill-defined, and if only we could remove the smoke screen, people would see how much money they're losing to taxes. But the reality is that anti-tax folks are the ones making it difficult to understand the price at the register, as it pertains to income taxes. There's quite the conversation to be had about the murkiness of appropriations, certainly. But adding friction to the tax return process doesn't make me want to call my congressman about where my taxes are going, but instead to ask why a senator in Wyoming or Texas is so excited to bend over backwards to protect the business interests of a company based in Mountain View, California, at the expense of all of their constituents?!
Basically new tax rules are put into place with little regard on making them simple or including data collection as a part of the tax change.
https://www.policygenius.com/taxes/who-benefited-most-from-t...
I mean, yeah? 42% of Americans pay no federal income tax, how could tax reform benefit them unless it's handing out cash? Which we already do with EITC.
And the complexities and burden of the tax system go way, way back before Trump's tax reform. Think more like anything passed since the 1950's.
You went out of your way to make this about partisan finger-pointing and I merely countered that there's plenty of blame to share. Way to deflect and spin!
Partisan politics is why the subject is so rancorous. I have no party affiliation and am happy to acknowledge and criticize the one that I am most sympathetic too. This is why we can't have nice things -- because we can't talk about policy and and government reform without it becoming a pissing match.
You said "The last time we were given "tax reform"", which implies this is a recent issue. I countered with "look at some of the tax bills Democrats have sponsored", clearly showing it's NOT a partisan issue, both parties are doing it, and have been doing it for decades.
The original comment blamed Grover, so in fact you're replying to a chain of comments that were already partisan, so I reply with a comment about politics and you somehow blame me for making it partisan. Fun!
Are they going to be aware of all deductions in all cases? You are absolutely correct, there's no way that's correct.
> In 2017, 47.1 million taxpayers itemized deductions, relative to 15.3 million in 2018. This dramatic shift maps to a more than 19 percentage point drop in itemizers as a percentage of all taxpayers, from 30.90% to 11.47%.
The majority of this was people's mortgage deduction went from being more than the standard deduction (so itemization is worthwhile) to being less (so it's not worthwhile).
You can roughly estimate what your itemized deduction might be.
Why wouldn't such a system work here?
It's not like the act of doing your taxes is what makes your realize you're over the standard deduction. Most people will know if they've done standard or itemized in the past and act off that.
That is exactly how I figured out I should itemize my taxes this year.
That's pretty much the extent most Americans think about itemization as it stands, and whether it comes from a tax software or the government, the result is going to be the same.
Your comment seems like a prime case of perfect being the enemy of good.
Unless they are a homeowner, probably.
Part of the issue is that the US tax code is a lot more complex than most countries. (And the homeowner-targetted deductions are kind of insane and bad policy too).
Still, I don't disagree with the basic premise. They probably know enough to know if itemizing your homeowner-related things would be better for you, and do it that way. You can ask for adjustments, or you could always ignore what they calculate for you and do it all yourself from scratch if you wanted to, a thing I believe you _can_ do in European countries that generally calculate your income taxes for you?
Also, I wish our tax code werent' so insane.
Isn't that a relatively recent thing? IIRC, the standard deduction was massively increased a few years ago.
Yes, it is. What difference do you think that makes in the present day?
Something we can do differently that seems obvious today could have been a disastrous policy just a few years ago.
The optics of the IRS sending out bills for thousands of dollars more than people rightfully owe are bad, to say the least.
In practice, about half as many people itemize today than they did back in 2016.
Of course it depends on where you live - in San Francisco if you can afford a house at all you have enough interest to deduct it (especially at today's rates), but other areas have more sane housing prices and lower incomes.
I think you can still easily reach if you, say, tithe 5 or 10% of your (post-tax even!) income (to a church or other 501-c-3) and have a mortgage and pay property taxes in a major metropolitan area. (Also if you're single the standard deduction is half married filing jointly.) (I didn't realize the personal exemption is gone now too!!)
But a quick google says... according to the IRS in 2022, 139.2 out of 154.3 million tax returns took the standard deduction, which is indeed around 90%. (Looks like up from 87% in 2020 maybe). So, true, defintiely most people, but still 10% not.
It looks like maybe pre recent Trump standard deduction changes (which were phased in), as many as 30% of filers itemized. (Still a minority to be sure).
I wonder if charities have seen a big hit in donations, if the itemized deductions people are no longer taking were an incentive.
I guess there was a $300 provision for charitable deductions enacted in 2020 that they are trying to make permanent and larger. Web site wasn't working for me but Google's cache did: https://webcache.googleusercontent.com/search?q=cache:WdabFa...
"Here is what we think you owe/don't owe. If this isn't what you expect, then click this button to add or subtract deductions. Oh and BTW, we know you owned a home last year so we included that too!" Or, "Hey we noticed you took the standard deduction last year so we assumed based on what info we have that this year might be the same so here is the standard answer!"
> Your comment seems like a prime case of perfect being the enemy of good.
And the comments advocating for automatic tax filing seem to be ignoring Chesterton's fence. They seem to be viewing it solely through the lens of revenue collection. However, IIRC, for better or worse, one of the big levers the US government uses to influence individual behavior is incentives implemented via tax policy. It stands to reason that mechanism would stop working if individuals could avoid interacting with the tax rules.
Removing manual filing won't stop people from voting on tax policy.
FWIW, we are in the "on the cusp" boat. Another year or two and our mortgage interest vs principle equation will put us in the standard deduction range. And short of massive changes to either tax law or our income, we'll remain there.
Maybe these are “drastic” changes but they aren’t unusual across the population. Not planning on kids, so that means I’ll have fewer changes than most. But the person I plan to marry has significant changes to income based on commission so I’ll probably be doing taxes this way for a long time!
Which makes sense in a lot of spheres where's there's obligations on both sides. Unfortunately, if myself and the IRS come a disagreement about my filings, I can end up in jail or at the very least deal with an expensive criminal prosecution. If the IRS is wrong, then there's effectively no penalty for them.
The government wants it both ways. People understandably have some apprehension about this.
I think there's a huge gap between facing an audit in most circumstances and those two outcomes...
It has to be supported, and you should be able to change it. But there's really no reason today for why IRS doesn't send you "this is what we think you owe, based on this data that we have. Click to accept or add more data". That process would hugely simplify taxes for majority of Americans and wouldn't impact people who have more complex cases.
Imagine a landscaper doing doughnuts on your lawn and then telling you to pay him to fix it, and that's roughly how I view Intuit.
Which you can use free app to download, file and send the filed one.
weirdly enough official site also have instruction on how to use PlayOnLinux to run it under Linux
It's interesting that anything other than MacOS and windows is even considered at all, even just in the instructions.
Of course, you might still want to amend that, but as the first pass it can be quite accurate.
People wealthy enough to even think that their deductions might exceed the standard deduction are not only in the vast minority, they're also wealthy enough that paying for TurboTax isn't an issue because they have their accountant do the taxes.
IOW, you're optimizing for the exception, not the majority case.
For those who itemize, the government usually knows about most the things you're itemizing. I'm itemizing this year because of 3 things: taxes paid, mortgage interest, and charitable donations. The government already knows about 2 of those, so they could send me prefilled forms that are 95% complete (W-2, investment 1099, mortgage 1098, mortgage 1099 and other bank account 1099-ints, my form 5498 for my IRA, property taxes, etc). I'd much prefer only having to fill in my charitable donations. It would change a job that takes a couple hours into one that takes maybe 15 minutes.
https://www.pbs.org/newshour/show/dreading-taxes-countries-s...
A government has a monopoly on taxation by definition or else it can’t be a government so calling it a public monopoly doesn’t make a lot of sense.
Right now, the IRS is forced to establish some sort of data interchange format and adjudicate incoming tax filings equally, because they're required to work with TurboTax et al. (even if only required from a practical standpoint).
If they also provided the only filing solution, that pressure would be gone.
IMHO, the best possible outcome is definitely IRS-supplied free file + private options, if users would like. Keeps everyone honest and on their toes.
It’s literally data entry.
Tax prep/accounting (what to put where for cases where there is ambiguity) can always be different.
That doesn’t apply to W2 earners though (in 99% of cases)
Ergo, imagine there's a checkbox option that would apply to 25% of free filers to save them money. How would the IRS free file handle that from a UX perspective? What are their incentives?
Alternatively, suppose a feature used by 10% of filers is broken for the current tax year. How long does it take to get fixed?
Current private solutions are incentivized to optimize those ("We save you the most money!") and fix them ("Our software isn't broken").
And because only the data transfers over to the IRS, all the prep optimization can be done independent of the IRS.
Some of the incentive concerns would be alleviated by (as this did) building this from a different branch of government (e.g. US-DS).
But at the end of the day, it's still the government telling you how much to pay the government. Or as the joke went about the 1040-EZ: "How much money did you make? Good. Give it to us."
Dozens of companies sell online products to file, and thousands of individual providers are available too.
Apparently TurboTax has ~70% market share for tax preparation software, and TurboTax + H&R Block have ~95% market share. [0]
But even that's still a heck of a lot more competitive and responsive than if the IRS shipped the only tax prep solution.
[0] https://secondmeasure.com/datapoints/tax-prep-2021-turbotax-...
It's a competitive market on a stupid game. The market solutions (maybe mostly just intuit) fight to keep the game near impossible for the lay person to play. They generate "GDP" by making it more grievous than it need be.
At least part of this is a symptom of a broken political system (the current process of voting encourages 2 party system which are incentivized to not experiment)
The federal gov’t has enough power to make either of these groups miserable; and so each is using it to fight out who gets to do so.
Picking one to win isn’t going to stop the conflict, but it could turn it into a shooting war.
They all suck, and in a better society, that number for normal people would be close to 'zero', because the IRS could just send me a bill to attest to and sign.
The spherical cow of the accounting world
A lot of things are ‘legal’ as long as you don’t get audited.
But of course, the dynamics of our current system are such that the people least likely to be able to defend themselves legally are the ones which are frequently targeted for tax dodges. How many years do the extremely wealthy have to dodge taxes before the IRS finally comes down on them? Meanwhile, a friend of mine got dinged for a $500 deduction for unreimbursed work travel and not having receipts (a $2000 fine which she had to borrow money to pay).
I worked in a country that automatically fills out your tax return. Sure, it was nice that the form was pre-populated, but you know what I did? I doubled checked all the numbers to make sure they were right.
Were they? No, my employer had miscalculated retirement contributions resulting in a higher tax bill for me.
So I ended up doing all the math anyways, just like I do in the US.
Are we doing something wrong? It seriously does not seem hard to file taxes.
The majority of the population doesn't know anything about their taxes that the IRS doesn't. Why force everybody through a song and dance that only is of service to the exceptions (and a couple very large tax filing corporations who lobby hard against automatic taxes)?
My biggest time sink this year was sorting out how to file crypto gains/losses. After two hours of struggle, I found that I had to pay income tax on about 15 dollars of capital gains.
Investments: Yes, I have to file a 1099. Business: no.
Crypto: I think your holdings have to be significant for it to matter whether you file this or not, maybe I broke a law here.
I think most people don't report interest that is below the reporting threshold for the bank either. Doesn't change what the tax code says you are supposed to do.
If the answer is yes, but you put no so that you didnt need to file any additional details, thats definitely illegal.
What would be better is if the IRS just sent you the stuff they know and you affirm that it's true. This prevents people from accidentally committing tax fraud and eliminates the need for middle income Americans to pay a yearly fee in order to be law abiding.
Yearly fee? I had to pay for turbotax but I was under the impression that it was because my income is very high.
I don't know, it makes sense to me the way the IRS does it. If I get a massive windfall and the IRS didn't send me information about it, then I would be able to just not file it because I would know they don't know about it. Not so if I don't know what they know.
Even with the "free" standard offering, it's been lucrative enough for them to lobby heavily to prevent taxes from being easier, just to funnel the majority of the country through their slow filing flow and try to upsell to all of them.
Ideally the IRS would tell you what they think is accurate and you'd submit amendments for anything that's not accurate. That's no different than the current arrangement since you already need to report all income, it just eliminates the extra cost and effort for the majority of Americans that don't receive windfalls.
Yes if your tax situation is simple, the IRS already knows everything. In many other cases (even something pretty common like self-employment income) they do not know, and you have to tell them.
In my experience, the IRS won't get mad about that. They'll ask you to correct it, of course. What makes the IRS mad is if it looks like you're actively trying to illegally avoid taxes.
Also, in my experience, the IRS are generally decent to work with. My state revenue department, however, is the opposite of the IRS in every way. They're just mean and vindictive.
There's a lot in this thread about standard vs. itemized deduction, but since Trump's tax reforms, the standard deduction has always vastly outweighed itemization for me, and I believe, most Americans.
The part that causes me the most grief nowadays is the 1099-B; there's a few of required tax inputs related to investments that just aren't captured on that form. (Although in recent years, I've started taking better notes, and now I can just refer to past years' resolutions for repeat scenarios.)
But even just punching in the requisite numbers I think takes me longer than 30 minutes…
Then there just seems to be an annual surprise per year. ESPP sales complicated one year; they're a weird mix of income and gains. I had a stock split occur one year, resulting in a fractional share that was liquidated for some really odd capital gains. Moving has complicated state taxes numerous times due to states with poor definition of what constitutes a "resident". I've been plagued by a number of errors on various forms (including twice on the W-2!).
But the upthread remark — that the IRS knows the answers — should apply to my situation. Basically everything tax-related about me, the IRS already knows. They can just send a bill; if I don't trust it, I can look it over for correctness & perhaps trigger some sort of correction process. (Presumably today, they'd just audit me if I was too far off their number.) About the only thing I think that might cause a discrepancy is charitable donations.
Assuming the problem is actually ideological opposition from Republicans, and not campaign funding, because then it would be bipartisan:
https://www.opensecrets.org/orgs/intuit-inc/summary?id=D0000...
That page shows who employees of the companies have donated to.
(And the politicians aren't actually "bought" by it. It's more like they already agreed, and maybe they're being paid to stay politicians instead of getting a better paying less annoying private sector job.)
And corporations can't donate to "campaigns" but they can perfectly well donate to PACs aligned with campaigns.
> And the politicians aren't actually "bought" by it. It's more like they already agreed, and maybe they're being paid to stay politicians instead of getting a better paying less annoying private sector job.
But nobody said they were bought. It's not corruption if it's legal, right?
The problem is the systemic bias it introduces. Politicians need to raise money to stay in office, so they have to appease whoever has money. So politicians who appease special interests have an electoral advantage, win more elections and constitute a majority of the legislature.
How about a simple form which shows those numbers in large typeface and nothing else?
Unreported gambling winnings or a low revenue side gig aren't tracked by the IRS.
How this all changed with cryptocurrency, I don't know.
I think taxes are all about what's written down and what logically makes sense. If you pay someone $1000 to do a job, they have to pay taxes on that. If you invite your friends over and spend $1000 on food that they eat, they don't have to pay taxes on that. I don't know why.
The general issue with gambling wins is not that the IRS doesn't know (casinos report winnings) its that they don't have to report losses.
It's generally $600 for winnings, and $5000 for withholding.
https://www.irs.gov/pub/irs-news/at-01-17.pdf
https://www.irs.gov/pub/irs-tege/gaming_withholding_reportin...
Why can’t the IRS just tell me what they think I own by April 15th, and then i can add things to it.
My taxes are really simple. I still don’t understand why I have to spend at least 40 minutes every year giving the IRS the information that they already have.
Seems like getting to a point where ~75% of the population didn't need to file would be doable if there was enough motivation for it. If your only income is on a W-2, and your only mortgage / banking / trading is with U.S. companies like Chase or Morgan Stanley, no reason that couldn't all be done for you.
Most brokers send all the info to the IRS, but there are some that get wrong cost basis for ESPP (Fidelity looking at you) and so you’ll have to rectify that too. But those things should spit out a number that gets adjusted from the IRS number.
I had a friend in college who hated doing taxes so he spent 5 min putting whatever numbers into the forms.
A few months later the IRS sent a "your filed incorrectly, here is the corrected return" and he'd be like "cool".
That said, I'd be more than happy to see HR Block go bankrupt.
The hilarious thing is that if we remove the context from this statement it applies so broadly that you could mean just about of our systems.
Having absurd systems is pretty much our defining characteristic.
-- Winston Churchill (probably not[1])
1 - more likely a generic version of this was posited by Israeli diplomat Abba Eban in the 1960s and mis-attributed to Churchill sometime in the 1980s
We're just not aware of foreign dirty laundry, and as a tourist you'll not notice.
It's like when people say: Europe is so much better at xyz. When what they mean is: Finland is amazing, you know, tiny little 5m person Finland, with very little diversity and a strongly exclusionary (just try immigrating into it as a low-skill poor person) homogeneous culture, it's amazing. The same goes for much of affluent Europe: it's hyper exclusionary, elitist, and often extraordinarily racist against outsiders.
Meanwhile the US is the world's largest economy, has welcomed tens of millions of poor people from the third world over the past 40 years (and that door is still very much open), has the third largest population and is hyper diverse compared to nearly all peers in Europe. Even Canada is drastically less diverse than the US. It's far easier to manage a nation that consists of an overwhelmingly dominant single culture, there are far fewer competing interests or complexities.
A country as large and complex as the US, with that much diversity, and that many layers of government to manage it all (federal, state, local; the US state government system is gigantic in its own right), is going to be a very messy machine. There's no scenario where that isn't going to be the case, no matter where it exists.
The only reasonable comparison regardless, due to the scale, is the US to Europe broadly. The US does just fine on that comparison. Shall we talk about how nice Western Russia is? How about the last 20-30 years of Greek and Italian history? Or is the premise to only refer to the good outcomes of Europe?
What I'm saying here is: Until you've lived in a country, you probably don't know the absurdities of their own system.
Of course, it's good to celebrate specific absurdities being overturned, as is (slowly) being done in this instance.
IRS knows all the income data only in simple cases like salaried employees with W-2 forms. If you are business owner or contractor the things can be more complicated and what IRS really knows is a guessing game. IRS is posturing and bluffing that they know everything and put pressure on a tax-payer to voluntary disclose as much as possible about their income out of fear of criminal persecution. Also they will rarely tell you that you "overpaid" your taxes unless it is a simple math mistake.
If you already can avoid the trouble for 50% (?) of the people who are in the standard case, it's already a massive win.
“Our estimate of your income may be too high in certain situations, for example if you are a business owner, independent contractor, or receive income from RSU or ESPP sales where the tax basis reported to the IRS is missing or inaccurate. In those cases, you are encouraged to fill out your tax return using the tool of your choice” (Hopefully with links to some options).
Otherwise, there’s going to be a lot of tech workers who don’t understand RSU taxation paying thousands/10s of thousands of dollars extra in taxes for no reason. (And yes, I realize some may think this is a feature, not a bug.)
Practically though, our tX system and economy is much too complicated to be able to accurately say whether incentives through deductions and credits are a net positive. We can say how expensive they are, but how do we measure the value added by pushing consumers in one direction or another? And if we can't measure its value should the government have that authority?
But also, there's still the risk of getting audited either way. Just because they apparently don't know about some income _now_ doesn't mean they'll never figure it out later.
Gun control, ISP prices & availability, public transportation and in particular long range trains are the top of the list of those subjects.
At first it’s fun, then it’s anoying, then it’s sad.
Thougt & prayers ! It will get better, or at least you will know intrinsically that you exhausted all of the 1 solutions.
Sometimes the US truly is exceptional -- name another country that has more guns than people and, critically, enshrines private ownership of guns in its constitution.
Czechia, Guatemala, Mexico, Phillipines, Ukraine, Yemen.
1) The tax software industry 2) Libertarian/far right groups want to make it hard for you to pay your taxes.
Here's a Planet Money episode talking about this: https://www.npr.org/sections/money/2019/04/03/709656642/epis...
And even if you did have some side income to report, the HMRC website had most things in a pretty easy wizard-like form, similar to turbotax or the like, with the things they already knew about pre-filled.
But for the great majority of people whose income comes from working for a living, you don't need to do anything to be 100% legally compliant.
It’s been like this for more than 10 years
In the last 5 the government made everything electronic
Every invoice or receipt any business or individual issues, is digitally signed by the government
If you are a single wage earner, you don’t even need to file your return, your prepaid taxes exactly match your overall tax burden
You can always choose to file if you want to or need to in case your situation is more nuanced
But most people don’t really need to do anything
These "simple" cases still cover the vast majority of American taxpayers.
And most of the common items are known to the IRS... mortgage and mortgage interest, property taxes, state taxes, education credits, retirement savings.
Common items that could be known to the IRS (but aren't necessarily today)... charitable giving, medical expenses, self-employed healthcare premiums.
The IRS could, relatively easily, email/SMS/snail-mail you a pre-filled tax return with the info they do have. If nothing needs updated, you just (e-)sign and provide payment info.
That not everyone agrees that it is a waste, or that society would find a better use for it is of course going to be a matter of opinion. Which some folks are heavily incentivized to weigh in on (to the point it may be a large percentage or all of their net worth), and to others it’s $50/yr.
Sure, but that's a tiny fraction of the population. Nobody is saying the IRS should send you a fixed return. Only that they should send what they have, and if nothing needs changed, great, society is better off.
In any case, most Americans do not care about this. I'm getting tired of the "10% of taxpayers couldn't fully use this system, so let's not bother" type arguments.
Certainly stock grants end up as W-2 income, but unless you automatically sell all of them, your choice of accounting methods matters. Many people I know have at least 2, one for employment-related stock and the other for their own trading. You don't even need options to get an accounting problem.
Also, I think you have a very narrow view of who actually cares about special tax circumstances. Teachers have several special credits. So do students. So do people who save for retirement. Not to mention people who run a small business or a side hustle. This isn't a 10% situation, this is more like 30-50% in any given year, and almost nobody files a bog-standard return every year for their entire life.
It would be nice, however, if the IRS told you about all of the W-2s and 1099s they got before you had to file your taxes. The good news is that you can do this if you file for an extension on your taxes and check an obscure section of the IRS website - many accountants do it.
I'm in the UK and there's reporting systems for- employers, pension schemes, savings accounts, charities and student loans- all to avoid most people having to fill in a tax return. Something like deducting sales tax would never be passed as a law because it wouldn't be accessible to most people.
As an analogy, we can say that laundry will never be automated because the washing machine can't separate whites from colours, doesn't apply stain remover, doesn't remove the delicates when it transfers to the dryer, etc. All technically correct, but people stopped caring. People have a financial and emotional attachment to their tax loopholes though.
I’ve also underpaid and my experience was basically the same (except I had to send a check instead obviously). Edit: and the “penalty” was just modest interest on the underpayment.
- pay >=100% of your previous year's earnings
If you're underpaying by more than that, there's a high chance you're doing so on purpose. Or made a fairly egregious error (in which case, the penalty was probably assessed later upon audit).
And if you overpay, you get a refund, not nothing.
It's absolutely insane that it doesn't work that way. Precompute the taxes owed, and send that to the taxpayer. The taxpayer can then accept the IRS's computations or reject them and file their taxes like they always have.
- Lowers the burden on those who have very simple income (W-2).
- Offers enough boilerplate to start a custom return with.
- Never miss filing your return, no matter what happens to you between early February and April 15th. At worst you'll not receive as much back as you otherwise would.
Everyone thinks that they can come up with a much better tax system, and they always start with something super simple that meets their tax needs. But a simple system that meets one person's tax needs is usually not so simple, fair, or efficient for other people. And when you take all their needs into account when you redesign the system...you end up with something pretty close to what we have right now.
For example, try designing a tax system that is both fair and efficient with respect to agricultural income and tech income (this is a fairly common assignment in university tax programs). It won't be simple. And that doesn't even get into how to reconcile the tax treatment of business income with the tax treatment of individuals, or the many ways they earn and spend income, or the complexities of other types of businesses (like manufacturing, retailing, resource extraction, in-person services, etc.).
I love these armchair opportunities for college-level challenges without the admission fees, I'll bite. Step 1: disallow corporation as a legal taxable entity, private ownership only. Step 2: Subtract expenses from income. Step 3: Divide by 10. Step 4: If more than zero, send a check.
"Fair and efficient" in terms of opportunity is easy. In terms of outcome is a fool's game IMO
But what about investments and assets? A car that you bought for the company has a limited lifetime. So its value is slowly decreasing, should that be considered an expense?
What about R&D? We want to incentivize it, so that companies do more of it. Etc., etc.
As far as I can tell, all businesses would like to be able to deduct all cash outflows whenever they occur, regardless of whether it's capex or opex. Businesses depreciate across long time cycles because that's what they're forced to do.
As long as they can carry forward losses, don't all businesses want accelerated depreciation?
You can generalize this to the funding of the US government. The system obfuscates the stark reality: the US government spends resources faster than it collects them. It makes up the difference it two ways: deficit spending and off-the-books liabilities (SSA and Medicare being the biggest). Inflation is a solution to these problems.
... inflation in combination with hegemony.
My understanding is that if the US wasn't calling so many shots on the world stage, other countries would be less willing to tolerate us inflating away the US dollars they hold. But as "the global reserve" currency (for now), they have no choice but to grin and bear it, desperately try not to inflate their own money supplies to deal with the loss in value.
This is basically the truth behind MMT. Inflation actually can get you "free" money, but only because you're basically forcing it out of other economies by virtue of holding all the guns and oil.
This statement is mostly true and your point remains but there is a small percentage of Americans who have complex stuff like a Business, multiple non-W sources, investments, Itemized deductions etc. For those, IRS cannot just figure out everything themselves.
A good solution is for IRS to automate those 90% of cases and for the rest, let them file with CPAs and tools as they do now.
Source: I run a business (well 2 now with a much smaller one) and my taxes are never simple. I wouldn't be one of those Americans with straight calculated stuff. I like my deductions and options but also pay a lot to CPA to handle this shit.
Imagine building a tax collection product that attains a 99% satisfaction rating from the people that pay those taxes and then having it get killed by legalized highwaymen. Even today the top google results return dubious totally-not-funded-by-intuit sources such as "the tax foundation".
How does the government know my non-compensated travel and moving cost, wfh expenses, cash charity donations,etc...?
If people like you get the option to file directly with the IRS, fine by me so long as you don't make the rest of us pay more by losing the ability to play the game and save money.
Was that ever deductible? You don't get the home office deductions unless you're self employed.
> cash charity donations
That basically isn't deductible for anyone anymore since nobody itemizes.
Why can my bank and credit card vendors tell me "up to the second" the status of my account. I use a credit card and get an alert on my Apple Watch. The IRS could have an app that shows it in real time (say up to the day) how much tax you've paid and if they think you'll owe more or get a refund based upon what they know at that point and time and what they know from last year.
Second, why do I need to give my employer my SSN and several forms of ID? Couldn't I share some sort of token that the IRS could give them with my name and maybe a picture and all the instructions embedded on how to withhold, how much to withhold, etc. Maybe it could be a unique identifier per job. I get a picture id but they shouldn't need my SSN. It can't quite be just an opaque QR code but it could be something pretty similar.
Why is it that we can have highly advanced AI, phones, and monitoring systems but so much of what we do is as if we're living before the internet?
Obviously politics (not just a left/right divide, but even at local and budget levels) plays a role. But let's be real, street lights (and cross walk) should be algorithmic and sensor driven, stores should have trivially developed web interfaces (AI can help this just from SAM), SSN being used for identification but also not (and being terrible at it), and so much more. This is literally every industry and ESPECIALLY anything that the government does. I don't want to hear voting online, but please talk to me about DMV online (not literally to me). These things aren't flashy, and maybe that's the problem, but I hate living in both the 22nd century and the 17th at the same time (exaggeration).
This is almost certainly an immigration thing, not a tax thing. From I-9 is required to be completed by all employers. See: https://www.uscis.gov/sites/default/files/document/forms/i-9...
That particular idea might be a little bit more subversive but why does an employer need to care? Immigrant or natural born citizen, they should have some sort of tax paying relationship with the US federal government.
The southern boarder is being used mostly just for politics right now, but if we wanted to curb illegal immigration I think a big part of it would be some sort of "you're here now" stamp, some sort of criminal penalties for hiring undocumented non-residents, maybe mandatory tax withholding for everybody and then some sort of "you're allowed to work here" token from the feds.
The IRS certainly doesn't care whether you're working legally or illegally, as long as they get their share. The employer is mandated to care by immigration law, since it's against the law to hire someone who is not authorized to work in the US.
> we wanted to curb illegal immigration ... some sort of criminal penalties for hiring undocumented non-residents
This would certainly make a big impact.
> then some sort of "you're allowed to work here" token from the feds
It's called an Employement Authorization Document or EAD, issued by USCIS.
I wonder if a politician could get away with calling these "bullshit jobs" in response.
Obviously, calculate whether it really works out in your favor with the credit card payment fees, but in many cases it will.
Example: Chase Ink Unlimited[0] has a 75K points ($750 at minimum, more if you have a Preferred or Reserve to transfer to; was a 90K/$900 offer up until tax time this year) bonus and 1.5% cash back. It's free (untaxed!) money to pay your taxes.
https://creditcards.chase.com/business-credit-cards/ink/unli...
[0]https://www.nerdwallet.com/best/credit-cards/cash-back
For example, if you have to pay $15K in taxes, you can sign up for a Chase Ink Business Preferred card, pay the $15K+1.85% = $15277, get the 100K bonus + 1X points on the $15277, which puts you at 115277 points, which is worth 1.25x in travel, which puts you at $1440 worth of air tickets or $1152 worth of cashback.
Subtract the $277 extra you paid, subtract the $95 annual fee for one year (before which you'll cancel the card of course), and that leaves you with a net return of $1068 in air tickets or $780 in cash.
There are quite a few other cards that you can come out ahead in as well, depending on how much tax you owe.
And yes, I did this.
What’s wrong with that? You can pay estimated quarterly taxes with a credit card too. Many churners do.
No, many W2 people also have investments and capital gains, and it's very easy to owe big taxes without under-withholding.
Also, if your W2 income is, say, $500K, it's not out of the ordinary to owe another $10K or $15K even if you don't intentionally under-withhold. It's not within penalty territory but more than enough to get a sign-up bonus or two and get a couple thousand of it back in cashback, air tickets or hotel stays and things you'll use anyway.
If you owe $20K in taxes, you can totally sign up for 3 or 4 cards and reap all the bonuses in one fell swoop. 2 payments per processor, PayUsaTax is 1.85%, Pay1040 is 1.87%, as long as your sign-up bonuses can beat those numbers (they easily do on many cards, see my other comment below), you can get 4 sign-up bonuses easily.
I already am doing everything I can possibly do within legal bounds to reduce my tax bill. 401K, IRA, credits, you name it, I have it. The credit card thing is just at least getting my cherry back after the government took my cake.
Many years ago, over a decade now, Virginia had an incredibly easy and free tax filing system. H&R block got one of their people elected for one term and they quietly killed it off and now we have one of the highest filing fees in the country.
You would think they would want to encourage high income citizens to use their tool so they can control the deductions/credits/process.
Free-file is useful when all you have is 1-2 above-board wage earning jobs, maybe with a 1099 contract job where the employer is nice nice enough to pre-fill the form out for you.
Once you start dealing with non-trivial amounts of dividends, interest, securities, partnerships, real-estate, you really do need a professional to keep things organized.
For some people. A person working a single job as a programmer earning $300k in straight W-2 income (no RSUs, etc.) does not have more complex taxes than a person earning $100k from a combination of their podcast + a few rental properties. There's no logic to means-testing this kind of service, where there would be for feature-testing (i.e. "Does all your income come from your job?").
CalFile only cares about handling "simple" items. Other notable exclusions [2] are capital gains, health savings accounts, Schedule C, Schedule E, and Roth IRA conversions and distributions.
[1] https://www.ftb.ca.gov/forms/2022/2022-540-ca-instructions.h...
[2] https://www.ftb.ca.gov/file/ways-to-file/online/calfile/calf...
One of the calfile devs shows up on HN every once in a while. I got the feeling that the real impediments were more bureaucratic than on the technical or accounting side of things.
Lobbying by the "big tax preparers". Higher income individuals are more likely to have more complex returns and/or be more willing to part with $149.99 to TurboTax to do their taxes. TurboTax (and others like them) don't want to miss out on that gravy train by letting the IRS let those folks file for free.
For what it is worth, the UK online filing is actually pretty good these days. Modern UI, and the process is tailored via a few "wizard" type questions initially so you are only shown the bits you need to fill. It can get a bit confusing at times though just due to the tax laws themselves and the terminology etc, but the system for filing itself is pretty good.
Thanks to onyone on here (and I bet you are on here!) who is working on the gov.uk stuff - it is generally pretty good.
The process is still way too hard and confusing, but at least it feels like I'm feeding one less parasite this way.
And yeah my scenario includes investments. off the top of my head my return featured:
* income from 2 employers for the same person
* income in 2 states
* kids and the stuff that comes with that (child tax credits etc)
* capital losses (it's that time of the business cycle :< )
* interest (US treasury products)
* dividends
* mortgage stuff
So if tons of americans can just do a 1040-EZ, then I feel like my usage probably covers like 99% of the remaining folks (which I would characterize as "I could do a 1040-EZ but I have kids and stocks").
Everytime this comes up though I post this https://apps.irs.gov/app/freeFile/browse-all-offers/
There's many nice and cheap options out there. Please, if you value basic democracy, don't give money to Intuit or TurboTax - not a dollar, not a penny. But do click on their paid ads whenever you see them and just close out after the page load. That company needs to be dismantled brick by brick, byte by byte, and deposited in the dustbin of history.
Strangely enough that IRS search tool claims there are 0 options for me, even though FreeTax works just fine.
The other players in the industry price their competing products at $15-$20. They're upfront and there's no hidden costs.
Intuit is an extreme outlier and charges an outlandish premium to fund their dishonest lobbying efforts, lawsuit settlements for their countless crimes, invasive advertising and opulent demands of their shamelessly corrupt C-suite.
Fortunately I'm owed so shouldn't be paying any penalties for filing late. But it's still annoying.
I'm looking forward to an IRS free file system that won't require 5+ click-throughs to submit.
Might I suggest using AdNauseam instead? It's essentially just automating that in the background.
For years I kept a Windows VM around just to run whatever the cheapest tax return software was for that particular year.
I was flabbergasted that when I was living in Ireland, I could do my taxes by going online, clicking a couple boxes, and hitting submit.
This was the year I decided to compare freetaxusa with a paid professional. Maybe it's just that my taxes aren't complicated enough to warrant a pro, but I'm not making the same mistake again next year.
It almost seems like its doing some pdf scan with errors underneath when i dont trust it anymore. Maybe 1 day when they have proper api read access or something.
After I filled out all of the tax information my taxes were clearly off many thousands of dollars. I had to review my tax forms, do research, talk to an accountant, and then specifically request a tax form number in the help bar of TurboTax.
I would've owed $20,000 more in taxes because the software failed to account for the amount that was already withheld.
There was a state tax error, I think, in TurboTax's return. The FreeTaxUSA got that particular item more correct. (It was a bit of a debatable item, though.)
IMO TurboTax can't justify its price, vs. FreeTaxUSA.
As the years go by and all these plans are killed one after the other I realize how right this guy was.
Btw should I mention this is mandatory only for self-employed. If you're an employee, it's required by law that your employer must provided you a free service of filling the taxes and everything for you.
Everything is then setup centraly by tax authority which enables the process of submiting tax reports being automatic for most or either, if you have a more complex tax situation, taking you a couple hours tops to self-fill and submit.
It's rather surprising how progressive USA can be in some fields but so far behind in others...
Conceptually, and in principle, this freaks a lot of Americans out. But the burden of not doing it is exceeding the alternative, I think. While it may be progressive to automate tax filing, having the government know everything about your financial transactions without proper cause is not considered very progressive (I guess it depends on what you are trying to progress towards).
There are incentives (tax deductions) that are granted to citizens who ask for invoices with their fiscal details
It is indeed progressive because it unburdens citizens from a massive yearly headache when submiting taxes. It's progressive because it avoids physical printing of receipts, thus reducing waste and paper consumption. It is progressive because less tax evasion means more taxes to apply in free healthcare and social security.
Having people not dying because they can't afford insurance, or being restful that the state will cover up part of their expenses if they can't work (for eg: if they have a flu and can't work for a week) seems pretty progressive to me and a good tradeoff for leting the government know about a few purchases you make.
Also, if you want go paperless, your bank also knows about all your financial transactions and I don't see people caring too much about it as they care with government...
1. Sign in via chip card or certificate based authentication for which the activation codes come in the post.
2. All forms are neatly laid out and guide you through the process of filing them, the quality of the frontend is really top notch, they even have a dark mode.
3. All insurances (health, life etc.) and wage statements have already been submitted and you just import them to your filing for that year, there's no guessing on what the correct deduction should be etc.
4. You add in your extra deductibles and submit, you'll have a response in the post within 2-4 weeks.
5. If anything is wrong I can call my dedicated guy at the local Finanzamt, I've had the same tax official for the last 10 years.
6. I still use tax advisors for some years because they just know more tricks then I do, and the legalese German is a bit of a pain to grok.
7. Best of all there's no requirement to do a yearly tax statement if you work a normal job.
Everything is pre-filled. If you have no additional deductions to add in, taxes take around 5 minutes total to file. They have a fairly robust banking system as well so any additional tax you have to pay takes around 60s to send through any bank's mobile app.
Pretty much all I need to do is upload a 1099 for my bank account interest & cap gains, everything else is autouploaded.
The main difference you have to realize is not that our system is actually super shitty, we just have 4x the number of people to complain about things.
I suspect, that given the currently complexity of the tax system itself (rather than the filing, which seems to be pretty straight forward), the private based system saves the tax payers money each year over any system the government could create.
Oh, and USDS is involved, so shouldn't be a contractor shitshow.
That's our current system. You can pay nothing to file, but it means that the government then has to spend a ton of resources on managing pieces of paper. I'd prefer for staff time to be spent going after fraud than trying to read bad handwriting.
In this case with the IRS program, the WaPo article even notes about the Biden administration wanting to "better serve low- and middle-income Americans entitled to a bevy of credits." As in, they want to make sure folks get all the deductions (and other benefits) they're allowed.
Edit: Let me also add that many people use paper forms because it's free (or other reasons). There has always been a publicly-funded version of a way to pay your taxes. But because it's paper, it's been very expensive for the government to administer. This also incentivizes the IRS to keep this system updated each year.
I've always had this feeling that you could ask the IRS what they believe any given SSN/EIN owes and they'd be able to tell you (not that they would, but that it's already calculated somewhere). I don't know if this actually true though. I know almost all W-2 information is sent electronically. They know about most 1099 transactions too. But is all this information pre-compiled against someone's SSN, or do they only run that calculation as part of random audits?
I know this firsthand because a broker transmitted proceeds without transmitting a cost basis, resulting in a scary letter from the IRS a few months after I filed.
The problem, as I understand it, is that the IRS' technology is very dated, so processing is quite slow, hence the months-long wait between filing and a CP2000 letter.
If you knew the IRS missed something , you could safely not report it.
Not quite. The IRS knows the income that is reported, and the taxes you have paid.
It doesn't know which credits and deductions you qualify for. It can guess based on your previous returns, but it isn't accurate and needs to be updated annually.
Once you provide your credits and deductions, the IRS can calculate what your tax liability should be vs what you actually paid.
> The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.
This low uptake absolutely has to be one of the impediments to a rollout of a free IRS-run tax service. The argument is simple: why should we invest resources in expanding our free services when taxpayers don't use what we already make available? Is there data to support the notion that usage would meaningfully increase if we supported 100% of filing cases? (I would expect the opposite to be true; as tax situations get more complex, filers have more incentive and means to hire specialized help.)
Propublica did a report on this (linked several times in this discussion) that showed how difficult it was to get to the actually-free version of TurboTax.
It's not a service. It's an obligation. You want my money? Why do I have to find a "service" to get you to take it?
If you've never used one of those services, you should. Some of them have gotten better only very recently, some still look like fly-by-night scam operations that are trying to filch your personal information. The old adage "you get what you pay for" has never been more true.
> Is there data to support the notion that usage would meaningfully increase if we supported 100% of filing cases?
Yes. The billions of dollars spent lobbying the congress to prevent this very thing from happening.
Complex tax situations, likely will be using third-party advisors from here out regardless of what the IRS provides for wage earners.
> Though 70 percent of taxpayers qualify for those products, fewer than 3 percent of taxpayers use them, according to a Government Accountability Office report.
There's something other than "free" and generally blaming lobbyists that's preventing people from using these products. Without understanding that, it may not make sense to roll them out more broadly (although I do think that should be the goal).
At the end of the day, if you're a billionaire earned income is a teeny tiny part of your earnings and most of it is kept unrealized for tax purposes. As a result, the doctor or software engineer ends up bearing a 50+% tax burden while ultra high net worth individuals are lucky to pay even close to the LTCG rate on all their income.
The tax system is oppressive under the guise of being "progressive" but really it prevents social mobility.
Billionaires not paying tax on unearned gains is a complaint about the tax policy and its basis in $ not assets, not complexity.
Doctors and Software Engineers earning >$500K/yr and paying 50% of it in tax proves that social mobility is quite enabled.
The government has all of the data available to them, they should be able to send you a pre filled tax return that you can amend for whatever reason. In 98% of situations their numbers won't need changing and filing can be a 30 second process. I believe that's how it works in most other countries.
Of course there are powerful lobbies who want the tax process to be painful and that's why it doesn't work like that currently.
That's a problem but not the main problem. That's less than 20% of the tax paying population. The majority of the population is mostly 1-2 jobs & may be a house.
Probably without even giving Intuit a chance to bid on it. Not that I like Intuit, they suck IMO. But I do think a vendor selection process such as this should be an open one. Instead we will have more back room-brokered graft.
You can learn more about the U.S. Digital Service here: https://www.usds.gov/mission
Here's my breakdown of what took the most time/stress (I didn't use a stopwatch, so it's heavily impacted by how it felt):
2% creating a spreadsheet that did the simple arithmetic to add up sums for investment boxes and that did the final tax calculation
90% spent trying to understand/fix one stupid mistake with an HSA account that was very confusing in the tax code. I am nearly certain that TurboTax wouldn't have helped.
5% reviewing all our other accounts, saving copies of the statements, and inserting relevant values into a spreadsheet
3% copying and reviewing my copying of other numbers, including the long stupid EIN numbers from W-2s that I miscopied and caused the IRS to automatically reject my return
... and here are my conclusions:
* The thing I personally would most love but don't believe is easily possible is a way to avoid all the mistakes copying and to simplify some of the data collection and staring at 1099s from different accounts that arrange the boxes slightly differently, but I can see why this hasn't really been automated in an open source way. While some sort of image processing or by trying to scope out APIs with the financial institutions might help, it's hard to envision an open source project that would do this.
* I actually value tax time as a time to review accounts and finances. So even if the data collection stress was reduced, I would still want to have a good feel for the numbers.
* The most serious problems I seem to run into never feel like software problems. I have had problems like the HSA issue in the past with turbotax and the "helpful" UI can only do so much to answer tough questions.
* Last year I filled out the Qualified Dividends worksheet by hand, the spreadsheet is a million times better though. It's basically the same thing as those online calculators, but I wanted to be able to see what calculations it was doing and review it and also not put my tax info online.
* Overall, what I'm most inspired to do would be to share the spreadsheet or a similarly scoped program and document/continue to refine my process for entering and collecting data. Working towards an end-to-end solution feels to me like a loser, at least to start off. Modular seems like the way to go. Solve one problem at a time. There is already an https://opentaxsolver.sourceforge.net/. Haven't tried it out yet, but I feel like it isn't what I'm looking for.