It seems to be pretty even split IMO. It depends on your personal bias - if you lean in X direction, comments leaning in X direction will seem "reasonable", therefore not trigger your "oh crap this person is a Y" alarm. Since the human brain isn't really wired with an "all is as expected" alarm, it tends to not notice these things.
It's absolutely ridiculous that we can't get pre-filled tax forms here in the US. As the article notes, a large part of the reason for that stems from questionable behavior on the part of Intuit, which has been known to not only engage in lobbying [1] but also astroturfing, creating fake "grassroots" campaigns made up of "concerned citizens".[2] (I guess these "concerned citizens" just really enjoy spending time doing paperwork and buying tax software.)
It's almost beside the point -- it would be a problem even if TurboTax worked perfectly -- but I agree, I've found the interface quirky enough that it makes me question if it's always doing the math correctly.
Turbotax has a view that lets you see all the forms and how they're filling it out. It's pretty easy to check the math there if you really want to.
Depending upon how complicated your taxes are, it can also be easy to do them by hand. I only recently started using turbotax because I was tired of doing it by hand. My taxes are fairly simple though.
It's a few years ago, but I had a slightly complex multi-state situation and found that the numbers TurboTax calculated changed based on the order in which I typed them into their interface. That really felt like a bug.
I don't think anyone's really talking about the literal math, the adding and subtracting. It's more about pulling and putting the right numbers in the right places.
Here's an illustration. Say you sell a security that shows $X,Y00,000 proceeds of which $X,000,000 is cost basis and $Y00,000 is capital gain. It's really important to make sure only the $Y00,000 gets included in any taxable number. The 'math' in question is that this amount should be taxable and this amount shouldn't be, and the checking is that it was correctly expressed to Turbotax.
Turbotax will not make mistakes regarding the business logic of the forms. It will correctly "add the value from line 19d on schedule XYZ" every time. But Turbotax can't know that you entered the data correctly in the first place. It has no underlying concept of "this $Y00,000 shouldn't be taxed" or that you should have used schedule UVW instead of XYZ. It's just a fancy flowchart shuffling some spreadsheet cells. This is why you want to double-check Turbotax's operations using the form views that it provides. The form views are Turbotax's step-through debugger. If you think Turbotax is getting something wrong, it's much more likely that you misunderstood a question and entered something that wasn't what it was asking for.
Perceived bugs in Turbotax are right about in the same space as "blame the compiler" bugs in programming. They can exist, and poor messaging can create false positives, but 99% of the time, it's the user providing some kind of bad input instead.
In my case it fetched a 1099 from some remote source, and the text in one of the fields on the 1099 was automatically entered into a field on my return. The "debugger" identified that the field contained too many characters and would not let me edit the field or submit the return to NY so I had to print it. This results in a $50 failure to comply with the e-file-mandate penalty from NY.
For my IL return it would not allow me to e-file b/c I didn't have the PIN which is assigned the first year you file. However the system's workflow entered an infinite loop and I had to just abandon and click "print return" order to continue.
> Turbotax will not make mistakes regarding the business logic of the forms.
I do not think this is true. It will let you enter arbitrary values in fields on the form that you should not have edited. It does not re-check and delete unnecessary entries from the forms either, though in some cases these problems trip up the debugger and it forces you to delete the return and start over.
If the forms had truly thorough input validation it would be a very confidence-inspiring product to use.
Is it that bad? I tried out TaxACT for the first time and was fairly unimpressed. It didn't help clear up any of the tax questions I had, basically just linked me to the tax docs. It also had a pretty poor UI. Was thinking about trying out TurboTax next year, but it is more expensive and if it is just as bad...
I used TaxACT from 2000 until last year, when its interface for handling my HSA made me want to immolate my computer. Then TurboTax helped out.
This year, I just said "fuck it" and went to H&R Block, because I'm just done with doing it myself. Someone else who does this all day can do it faster, yell at the computer less, and I'll get the same results.
I normally do my taxes myself (I only have a simple schedule A -- home mortgage interest and property taxes deduction). However, a couple years back I sold stock I got years before, so I went to H&R Block. When I looked at what they billed me for -- I sold something like 160 shares of a stock, but the broker had to do multiple transactions (150 shares in one block, 8.something, on another transaction, etc), so I had something like 10 lines that accounted for a few bucks each. And the Block charged something like $25 for each "stock sell" line. All told it cost close to $300 for them to do my taxes.
Last year I was impressed but on this year's return it fetched some 1099s and imported data which exceeded some built-in field limit, then wouldn't let me edit the form to fix the problem.
I think for a professional tax preparer it would be great but the wizard left me scratching my head wondering if I'd filled it out correctly.
I also used Turbotax this year, and like every year at the end when asked how the process could be improved I made a similar, albeit less convincing, argument to FreakyT's. This is my 4th year of telling Turbotax I hate them after using them.
I knew people who worked at Intuit. The company's monetization plan is to make money off of old people. I switched to HR block online, it was much cheaper.
Stop with these stupid stop-gap measures. Income taxes are inherently flawed on so many levels, it's absurd. They're difficult to calculate, easy to cheat on, don't tax swaths of people who don't have a traditional income, cause grief every year and untold resources to calculate, verify, audit, etc.
Just stop.
A national sales tax, property tax, or frankly, any other option, would be better by far.
Thanks, but I read the article before it was even posted to HN and it doesn't even come close to resolving anything for anyone who's self-employed or has their own business. It might resolve the problem for some people, in a marginal manner, but overall, it doesn't do much.
Is that what I said? I think I said there are better options that would help everyone even more. We should explore those instead.
Also, if the government has all the information necessary to do your income taxes properly, then it'll literally take you 5 minutes to fill out the form. You receive the same forms they do, just plug in the numbers. The PDF version will calculate everything for you.
The problem is that the vast majority of people have DEDUCTIONS and the government has no idea what those are, so this wouldn't work for them.
The vast majority of people take the standard deduction. Only about third of taxpayers itemize deductions. Many of those would probably be covered by mortgage interest and donations which the IRS already knows about.
The self employed and wealthy probably would still need to do their taxes. Self employed is only 7% of workforce. Even their taxes would be easier because they would know all of the info that the IRS collected and wouldn't have to collect the paper forms.
Sales taxes are also a regressive tax. Low income households and those living paycheck to paycheck end up paying as a proportion of their income far more than high income households, since they consume more relative to the money coming in (and there's no exemption or deduction).
I moved from a state with no income tax and a sales tax to Oregon. I don't make six figures and I definitely pay more in OR state income tax than I did in sales tax in my previous state.
> The national, tax-everything sales tax doesn't tax idle money.
There's no such thing as idle money. As soon as you deposit it in a bank, it gets loaned out to someone else who spends it.
> People with money have lots of it and can spend it non-domestically.
Even now, you're obligated to report any purchases made outside the jurisdiction and pay sales taxes on that yourself. I'm not suggesting we abolish the IRS. They should still be around and do audits and enforce the law, especially in such cases.
> 6-8% of taxable expenditures, by definition, will equal less than the equivalent state income tax.
Not true; actual state income tax isn't its nominal rate on all income (state income tax usually starts with AGI and then has state deductions and credits). So 6-8% on some subset of expenditures may be more, equal, or less than 6-8%on subset of income.
Heck, its not even true without considering that; it would be -- without considering that income tax excludes some income in the same way that sales tax excludes some expenditures -- if expenditures had to be less than income, but its possible to run a deficit as long as your income is sufficient to pay the increasing debt service cost, which (particularly with an increasing income over time) can be an arbitrarily long period of time.
It's funny that that the article lists Intuit as the primary opposition. Every company that does tax preparation and creative loopholing, as well as the people taking advantage of the loopholes is a likely opponent.
The best way to simplify tax preparation is to simplify the tax code. The percentage of people who save money by itemizing deductions is extremely small, as is the percentage who claim (or are eligible for) any of the more generous deductions.
Doing taxes in the US feels like going through a garbage can of bad social program ideas, bureaucratic waste, etc. Then to make matters worse we get expensive wars...
The annoying part about all of this is that our taxes are already done. Due to various required forms for businesses, the IRS pretty much knows exactly what you make and how you did it.
Banks file forms. Charities file forms. Employers file forms. They know how many kids you have, they know how old they are, they know if you own or rent, and how much your mortgage is and the interest being paid. They have info on your outstanding student loans. Except for the edgiest of edge cases, there really should be no surprises. Even a moderately powerful desktop should be able to precalculate the taxes for everyone in the country in less than a day.
Why is filing taxes even a thing anymore? Hell, at this point, I wouldn't be surprised if Facebook could do our taxes for us due to all of the info they have. Our tax system is stuck perpetually in 1960, and it's just sad to watch.
As I said in the other posting of this, it is already done at some point. You get most of your tax forms before the IRS does, and you submit your tax return before the IRS processes most of them. They can't verify the information on your 1098s, 1099s, and W2s until the businesses that generated those forms submit their taxes and the IRS processes them.
Yeah, I didn't see that there was a previous post; sneaky. In any case, that just accentuates my point, really. Were this more automated, the businesses wouldn't need to file either. If forms were handled more like an API, i.e. filed when expenses/income happens, it would all be live info.
The government bitches about the digital age stealing their income, but they're not even trying to adapt. Nobody anywhere should have to "file" anything. The very act of buying and selling means it's already on file somewhere, and that means a live view is possible.
Many if not most businesses file taxes and tax forms on a monthly or quarterly basis. Between 75% and 100% of the relevant data is already in the IRS's hands. Businesses also generally don't wait until the deadline to file.
Only businesses that withhold taxes from employees, and then only on the employees. Principals who are not classified as employees, those who qualify as "family employees", and 1099 contractors do not report anything until the end of the year.
Anyone who bought a home in California in the last 10 years probably saves money by itemizing. Or any other high cost state with decently high income tax. It isn't huge but I wouldn't call it extremely small...
Any tech worker probably saves money by itemizing in California too. State taxes and salaries are high enough for that.
When I lived there I saved a tiny percentage by itemizing about half of the years, but then got hit by the AMT so it was all a massive waste of time.
I could see that homeowners in CA would benefit by itemizing, however a simplified system could make something like mortgage interest much easier to factor in.
The stated purpose of making mortgage interest deductible is to make home ownership more affordable. We should take a careful look at whether it accomplishes that goal.
My not well studied understanding is that people price homes based mostly on the monthly payment they will make, so the mortgage interest deduction tends to make them willing to pay more for a given home. Rising prices do not make housing more affordable.
People seem buy houses based upon how much money a lender will give them. Hence the whole housing bubble problem. I'm not sure if lenders factor in deductions or not.
> My not well studied understanding is that people price homes based mostly on the monthly payment they will make, so the mortgage interest deduction tends to make them willing to pay more for a given home.
As with any subsidy, you'd expect both an increase in the market clearing price of the subsidized good and an increase in the number of units sold at the market clearing price (that is, it increases both price and affordability), unless you have either perfect elasticity or perfect inelasticity, neither of which seems likely with homes.
> The stated purpose of making mortgage interest deductible is to make home ownership more affordable. We should take a careful look at whether it accomplishes that goal.
To the extent it does, it does only for people near the boundary of being able to afford to own a home, and does so (ceteris paribus) at the expense of everyone who isn't paying interest on a mortgage, including people too poor to do so even with the deduction -- who it therefore makes less likely to be able ever to afford a home.
You'd do at least as much to make home ownership -- but also lots of other things -- more affordable by getting rid of the deduction and cutting base rates on below-median incomes such that the net result was revenue neutral before considering indirect economic effects.
> The best way to simplify tax preparation is to simplify the tax code.
That much I absolutely agree with. A flat tax would require a single tax form the size of a business card.
> The percentage of people who save money by itemizing deductions is extremely small, as is the percentage who claim (or are eligible for) any of the more generous deductions.
Not true at all. Anyone who owns a home itemizes to deduct interest. Anyone who pays enough state taxes itemizes because you can deduct state tax payments on your federal taxes.
I do agree that taxes should be drastically simplified, but in the process they would also need to be lowered so that the average person pays the same or less in taxes as they would have with today's high taxes and deductions.
Right, many people do put down their home interest, real estate taxes, medical expenses, sales tax on a new car, etc...but even then, most peoples' itemized expenses fall below the standard deduction, especially for married filling joint.
So yes, a large percentage of people are just getting the standard deduction.
Not necessarily anyone that owns a home deducts. Consider that the median home price is $188,900. If you have a loan of 4% (current rates), that puts the amount of tax you would pay at about 7k for the first year. If you are single, this is just over the standard deduction amount. If married, it is below.
So, yes, plenty of people in the "we can afford expensive houses" category are in position to deduct. Majority of the nation? Not so much.
A flat tax isn't progressive though (unless modulated by significant exemptions and deductions, and then you're back where you started). And effectively regressive once you factor in diminishing marginal utility.
Ok, it would require 30 seconds of 3rd grade level math. That's clearly unacceptable, and we need to instead pursue a solution that pushes wealth upwards. Because simplicity, right? No other agendas involved there? Let's talk about job creators.
There are many arguments in favor of a flat tax beyond just simplicity, fairness among them. Also, I wasn't just suggesting a flat tax, I was suggesting a much lower flat tax.
If you took current government revenue from income taxes as a percentage of total personal income and just used that as the flat tax rate, that would indeed be quite unreasonable, mostly because that revenue number is far too high. On the other hand, a flat rate in the 4-5% range might not be unreasonable.
Or, alternatively, a simple formula that would still count as "flat tax":
tax = flat_rate * max(income - floor, 0)
Where "floor" is a threshold below which you pay no taxes. That would address the set of people for whom even a tiny increase in taxes could make the difference between making ends meet and not.
Let's be honest, the tax code is used as the means to influence social/economic decisions, without having to impose any laws. Even take gay marriage as an example...many states do not allow it still, however; because the IRS has said you can file married filing joint as a gay couple...as long as you were married in a state that allows so, even if you re a resident of a state in which it's illegal, you're good to go. This by itself pretty much made gay marriage legal nation wide. This is just an example, not that gay marriage should or shouldn't have been made legal, but should it be done in this way... using the tax code instead of ratifying the actual laws. It's a long, dark road we have started down with this method, and something needs to be done about it.
Is it really that dark a road to have the IRS pass a simple rule that simplifies tax filing and brings it closer to people's lived experience of keeping their finances as a family unit? They wanted to save themselves some paperwork by allowing people who cohabit as a family unit to file taxes as a family unit. How is that a long, dark road to having the IRS tell everyone how to live?
> The percentage of people who save money by itemizing deductions is extremely small
I don't know where you're getting that. The only number I can find on it is an unsourced assertion that more than 60% take the standard deduction [1], which still implies that on the order of 1/3 of taxpayers itemize. Hardly "extremely small".
Groups that call for lower taxes, like Grover Norquist’s Americans for Tax Reform, say it is a “conflict of interest” for the government to both collect taxes and calculate how much people owe.
I think there's some logic in this objection, but then again, I don't see these same complaints levied against the other "post-billed" taxes people deal with, like property, vehicle, and so forth.
Really, there's no likeable side in this. The tax prep software people (never buy Intuit!) have a vested interest in keeping the tax code complicated, and decent portions of the government has a vested interest in same.
The solution to both problems is a massive simplification of the income tax code - too many people opposed to it for that to ever happen, though.
> it is a “conflict of interest” for the government to both collect taxes and calculate how much people owe
Doesn't the government do this anyway? Try claiming that you owe $0 and see how that goes over. The individual taxpayer has already had the money withheld and then submits paperwork after the fact just in case any of the business entities involved failed to submit their required documentation.
In about 15 years in the labor force, I've never once had the withholding match up perfectly with the taxes owed. Either not enough is withheld or too much.
Either way, I'm stuck filing the #($&ing paperwork.
The employer is only liable for the Medicare/SS withholdings. Half of them are deducted from your check and the employer pays the other half out of pocket. As long as you're being paid as an employee you have no control over that. The employer will only withhold and send income taxes based on what you've specified on your W-4.
> I'm aware of that but my point is that most employers would not allow that since the employer is also liable if it under-withheld for a W2 employee.
AFAIK, they aren't liable for under withholding if they withhold correctly according to the W-4 signed by the employee, even if the W-4 claims things (e.g., "exempt" when the employee does not meet the qualifications) that are not accurate.
Submit a signed W-4 [0] to your employer with the word "Exempt" on Line 7.
Of course, by doing so you also certify that you are actually meet the legal requirements stated on the form for $0 withholding, under penalty of perjury, so you obviously should only do it if, you know, you actually qualify for it. But that's how you do it.
Just look at a W-4.
It's all there. (Including the no-income-tax-deduction option.) Just fill it out and hand it to your employer.
http://www.irs.gov/pub/irs-pdf/fw4.pdf
Since withholding is performed upfront it either uses older declarations or (more likely) some sort of standard chart. So it's similar to a utility bill: some amount is withheld throughout the year and once all data is in the actual amount of taxes due is tallied and the payment is adjusted (with a check to or from the IRS).
You're right. You should distrust any argument Norquist makes about taxation - you'll find that they are either wrong (as in this case) or strawmen. His actual goal is to defund government and you should assume anything he does is done to further that goal. And lest you think this is just ad hominem ranting, google "drown government in a bathtub" and look at the effects Prop 13 have had on California municipalities.
I don't see a conflict of interest there. If the rules are spelled out so anyone can do an independent check of the calculation than it's fine.
Is it a 'conflict of interest' for restaurant to both collect money for my bill and tell me how much my bill is? No. The rules are clear so anyone can audit their own bill if they feel they're being cheated.
If the government just said "You owe $673.25" and wouldn't tell you why or how they got to that number, then I would see a conflict.
That's just it though - the income tax code is byzantine.
A restaurant charge is simple - here's what you ordered, here's what each thing costs, here's the total. If you really suspect shenanigans, you get a copy of the menu to validate against.
Property tax is usually pretty simple, as is vehicle registration. Both can be described in a couple of paragraphs.
The problem right now is that even if the forms were precalculated, the IRS doesn't necessarily know about the deductions you're entitled to, and claiming those is a far more intricate process than simply filling out your PII (1040) or your wage info (W2).
Here's a relevant example. I just started going to school again at the end of last year (November). A run through with TaxAct/HR Block showed me as owing about $600 before any deductions or credits - you have to tell them about those. The fact that I started going to school gave me the "lifetime education credit", and turned a $600 payment (that I could not afford at the time, and was somewhat stressed about) into a roughly $2K payday.
Without the software, or paying an accountant, I wouldn't have known about that, and paid $600 that I didn't need to pay.
the income tax is byzantine for maybe a third of the population. The other two thirds of the population have a W-2, maybe a 1098-T or E, and take a standard deduction. Granted, they can use TurboTax for free, but it's still a waste of time.
The lifetime education credit is calculated based on the 1098-T that your school had to file with the IRS.
I had to help two friends navigate TurboTax after they couldn't figure out where to enter a 1098-E (student loan interest), so my anecdotal evidence is that TurboTax easily misses certain items when hey ask "Did you go to school this year", but not "Did you have education expenses" (or something similar). Without someone who had already used the software to enter similar items, they may not have been able to get that credit.
My main complaint with TurboTax (other than the fact that I have to use software to file taxes and buy a new version every year) is that I am charged to e-file at the state level.
You're being rather reductive, here. If I had just filed my W2 and 1040, I'd have missed the credit, and the existence of that 1098-T sent to the IRS wouldn't mean that I'd have received a check in the mail later. Also, the credit applies if you start school in the first three months of the new tax year,
This is what I mean. Comparing income tax filing (with a W2 and a 1040 by mail, with nothing else, that's at least 3-4 pages of work, with no guarantee that you're paying what you ought to be) with a restaurant bill (an itemized receipt of things you bought) is fundamentally dishonest.
Every comparison made is against single charge, a single payment, based on a usually simple formula, rather than an entire freaking body of law.
I don't. The IRS is going to calculate how much people owe in any case. The question is whether they provide all the information they've collected first, and calculate the results based on that, and provide it to the taxpayer who can either accept it or note any changes/additional information and return it, or they make the taxpayer do it first from scratch (or pay someone else to do it, or pay for a tool to do it), and then the IRS goes and does it in anyway for every taxpayer taking into account the information they have from the taxpayer and what they have received separately.
In either case, the IRS is absolutely going to calculate how much people owe. That's not even the choice that is at issue. So the objection to one side of that choice that the IRS calculating how much people owe is a "conflict of interest" is a non-sequitur; it simply has no bearing on the choice.
What Intuit lobbies against is allowing the IRS to provide pre-filled tax forms to citizens. They don't lobby to keep the tax code complicated.
I post this not to defend Intuit, but to clarify why the tax code is complicated. It's not because Intuit goes to Congress and says "please make this thing complicated." It's because millions of people and companies each go to Congress for their pet issue.
Norquist objects to pre-filled tax forms because he wants people to think hard about their taxes at least once a year. The theory is that if paying taxes is easy and automatic, it will be harder to argue for simplification. No one will care if things are complicated if they can just push one button and forget about it.
It's part of a larger ongoing debate: if government services work so well that citizens don't have to think about them, will that have the side effect of reducing citizen engagement?
It's not so different from the tech concerns about Apple's iOS ecosystem. Will the super easy, super controlled experience of the iPhone result in fewer kids thinking about programming?
My understanding is that they already do. That is, I send in my tax documents, and they check the documentation against what they've already received from others. Then upon comparison, they decide, if things match up, I'm OK. If not, they send me a notice that they think I owe more or less than I think I do.
It seems to me an altogether more sensible approach to have them make available the records they have for me, and I can check them, or ask someone to check them, or whatever. I'm tired of the fact that in 2015, I am still waiting until sometime in February to get that one piece of paper about my house mortgage before I can go off and pay someone to do a bunch of mindless redundant (see above) paperwork for me.
I'd much rather my financial planner just pull up my information, and file adjustments on my behalf, etc, and go about my business.
I did, I was agreeing. Sorry for annoying you - perhaps I should reread the commenting guidelines in case they added a "don't every restate things from the article" rule that I missed.... Oh it doesn't say that. However your comment is very similar to this guideline:
Please don't insinuate that someone hasn't read an article. "Did you even read the article? It mentions that" can be shortened to "The article mentions that."
Note also - the article doesn't mention any of my opinions or preferences in it. So no, not everything I sated was in the article by the fifth paragraph.
edit - the parent originally started with something like: "I suggest you read the article before commenting". I'm leaving the above as is, because I don't think substantially changing a comment after people reply to it is good behavior.
No. If your employer has issued a W2, anyone has issued a 1099 to you (via SSN), or any other documentation has been sent to or from the IRS, it's there.
All the arguments against seem to stretch credulity. The IRS already computes your taxes, they are just not allowed to share that with you (thanks to Intuit's lobbying). Instead, you must repeat the computation, and hope that your computations match what the IRS has.
If you don't match, then the IRS will either audit you or send you a proposed correction (along with penalties); i.e. once you fail to match, then the IRS is allowed to show you the correct calculations.
Yes, it makes no sense at all. It's akin to a business which provides you services asking you to prepare an invoice yourself, then sending you an invoice along with a fine if you missed something. They already know everything relevant about you (except perhaps donations and such, which you can fairly easily tack on) so I don't see why anyone would prefer the current mess that we have to deal with. It doesn't help that state taxes are non-uniform and weirdness often results if you live in one state and work in another, for example.
Seems to be how many Federal forms work: Fill out this form accurately, under penalty of perjury. We already know all this information, but reserve the right to prosecute you if your answers don't match ours. Don't forget to sign.
State too -- I remember when I did a defensive driving course in lieu of paying a ticket, you had to get a certified state copy of your driving record ... that the state already has.
The amount of taxes being collected throughout the year are by design higher than what you actually owe to the government. That's the same in most countries.
Of course you can get your overpaid taxes back by means of the tax return - but a lot of people don't have the money or time or knowledge to do that.
The overpaid money is to the government if requested back, an interest-free loan - if not requested back, a gift.
If the government would now tell the IRS to fill out the form for you - then there would be significantly less income - due to more accurate taxation.
> The amount of taxes being collected throughout the year are by design higher
This is not true at all. You decide how much money will be deducted from each paycheck by filling out form W-4 and similar state forms. You can make withholding adjustments after each paycheck.
IRS will penalize you if you "prepay" too little (for instance, if you owe them more than 10% of your total tax), but there nothing that prevents you from not giving them interest-free loan.
This process does not replace tax return, so I am not sure why would you compare it to filing a tax return. It's a required step to establish your paycheck withholdings. You will do it anyway. There is always a risk of penalty if you make a mistake while filling out this form or have unexpected income during the year.
I have found that when I fill the forms out honestly and accurately, it results in too much tax being withheld. It is certainly true that I can fudge the forms to get a more accurate withholding (and I have done that at times), but it does seem to withhold too much by default.
I live in Finland, and I have never filed a tax return. The tax office here has used pre-filled annual forms since the mid 1990s, and since 2006 the pre-filled form is automatically accepted if you take no action. For me, the information has always been 100% correct, and should there be an error you can correct it in an online service using two-factor e-banking login or a government-issued ID card with smartchip for authentication.
Very similar in Spain. We get our pre-filled forms and you only have to correct what's missing (typically, in my case, the annual rent I paid the landlord) using a secure on-line system. You then submit it on-line too. Done. Takes 30 minutes of your time in total or less.
In case of doubts, you can book (again, online, with a digital certificate) an appointment with the local "hacienda" branch on one of the available slots and have a clerk filing it for you.
The last time I was there, the clerk had me deduct the rent, when I didn't know I was eligible.
I have childhood memories of my parents being immersed in files and files of esoteric looking forms filled with numbers for days on end, and dreaded filing my first taxes.
The problem isn't primarily the government's thinking around computers or technology. It's the lobbying standing in the way.
Obama could force Congress' hand via an executive order, to get the ball rolling on tax reform. They would dive in to begin fighting for their interests rather than be left behind. He won't do it because he's just as susceptible to lobbyists as any of the other major politicians in DC.
As a British expat in California, I think the article actually gets the root cause here: Americans fundamentally don't trust government, and there is no-one they hate more than the tax man. If there's anyone not to trust, it's the I.R.S.
In the UK, as stated for other countries, I would just use Pay As You Earn, where all taxes were extracted at the time of pay check, and would owe 0GBP at the end of the year. My Californian wife was astounded by this. "How do you know they've not got it wrong and screwed you?!" "Because I trust they got it right." "Why would you do that?!"
My read of the British is that they might not like the government or politicians, but they generally believe that government agencies get things to the letter of the law more often than not. You can disagree with the tax law, but you assume that the tax man is taking the right amount as governed by that law.
You can't pass tax reform in the US because enough of the citizenship wouldn't accept it.
- Your current-year preliminary info becomes available online in November, and is updated continuously as the tax authority gets new information. You can log in at any time and correct things, declare unreported income, declare eligibility for commute subsidy, etc. The "regular" period for making such additions/corrections is through the end of February of the following year.
- In the first week of March of the following calendar year, you get a PDF sent to you with the "final" tax computation based on what is in the system as of that date. The tax computation is fairly simple for most people; for me, this is a 3-page PDF, of which the actual computation takes up 1.5 pages.
- If the form you get in March is correct and you're owed a refund, you don't need to do anything; the refund will be direct-deposited one month later (i.e. first week of April). If there are errors or omissions and/or you owe money, you have until May 1 to correct and/or settle it.
> - When do you need to accept your return or settle your outstanding balances by?
This year I got it in early March, and it's due by mid-May.
> - How are business taxes handled?
Pretty much all businesses employ an accountant that takes care for the basic stuff (paying and declaring salaries), and most also have a CFO - usually someone with a legal decree - who knows how to optimize the tax stuff. Every large corporation of course have a whole department of internal accountants and lawyers.
> - How complicated are your tax codes?
Not too simple at least! Multiple types of tax for different types of income (salary, capital, property) and the tax level depend on factors like municipality of residence, membership in a church, total income earned, sums and types of loans outstanding etc. If you collect social benefits, they further complicate as some are taxable and some not. There are also some "tax-like" fees payable by your employer, some of which are deductible in personal taxation and some not. And this is just what I know of personal taxation, the corporate taxation is a whole world of its own.
I don't think the issue here is that our taxation would be so much simpler - and anyway the IRS probably has disproportionate R&D budget compared to a small European country.
The US tax code is stupidly complex. There are over 500 changes a year made. That is just federal taxes. You are also affected by state, county and city laws. For all practical purposes, it is impossible to do the returns 100% correctly. Legislators use the tax code extensively to achieve things, from social good through corporate welfare and what most would consider outright corruption. Voters in areas may also add to laws with various funding initiatives (eg extra taxes to cover funding for school construction).
Look at sales tax just for California - http://www.boe.ca.gov/sutax/pam71.htm - and that table of quicklinks should frighten you. That is just scratching the surface. For example sales tax for in person transactions is charged based on the address of the store. Unless you buy a car, in which case it is your home address.
Two other factors apply. One is an American mentality that doing minor things against the law isn't that wrong, and being caught is where it becomes real. An example is speeding - it almost seems a contest of wits to not get caught, rather than fixing the limits or realising why they exist. Is it wrong to lie on your tax return about something, where the odds of getting caught are very low, and everyone else is doing it anyway? An example of that is how people call Amazon sales tax free because they are out of state. The supreme court says yes they are sales tax free (to not hinder interstate commerce), but then states charge a "use tax" which happens to be exactly the same as the sales tax. Very few people admitted to their out of state purchases since they were so unlikely to get caught.
The final factor is a distrust of government. They are seen as plodding, corrupt, useless, expensive, political, uncaring and largely pointless. They are very rarely seen as an instrument of voter will. This is what provides the perennial source of jokes - the DMV (department of motor vehicles), the IRS, city hall and all that. Who would trust government to get things right?
So tax returns turn into a contest. What do people think they get away with? Which of the many rules will they obey to the letter? What are their neighbours and others getting away with? Was that really a business lunch? How am I paying more tax than I need to?
Despite their values, neither of the main two political parties do anything to fix this. They are however happy to keep adding to the piles of laws, which makes it more expensive to comply, and increasingly unfair.
I often end up paying fines on my returns. This is not because I am a bad person, and I actually try very hard to get it all correct. It is just cheaper than doing some things the right way, and fairly normal! Some of those fines are also because I don't have a time machine, and I couldn't actually do things correctly without one.
(Note that factors above are generalisations, and don't apply to every last person.)
"The final factor is a distrust of government. They are seen as plodding, corrupt, useless, expensive, political, uncaring and largely pointless. They are very rarely seen as an instrument of voter will. This is what provides the perennial source of jokes - the DMV (department of motor vehicles), the IRS, city hall and all that. Who would trust government to get things right?"
This I find to be the absolute dumbest reason of all. The IRS already knows everything about your income that you would be telling them anyway.
> The IRS already knows everything about your income that you would be telling them anyway.
Not even close. For example they don't know how much you paid in state taxes, and which portions of that are also considered okay for fed taxes. Eg in California a portion of your annual vehicle registration fee can be taken against state taxes. Do the feds also allow that?
They don't know what you consider business expenses. They don't know how much of your house you used for business purposes. They don't know where you resided during the year and the tax treatment of the various places you did live. They don't know about your moving expenses.
They don't know about income you received in cash. They don't know about your Amazon purchases. They don't know about your medical expenses. They don't know about your losses.
They don't know about your foreign income or assets.
They don't know about dependents, or how they have changed. Or your marriage, or divorce. Or how you want your married taxes to be treated (there are at least two different ways).
That is just scratching the surface of the tax relevant things - there are a huge amount more. As an individual you couldn't get your tax return 100% correct, and the government certainly can't.
Edit: various institutions and employers are required to file information with the IRS. However this is big picture information - for example how much interest you were paid on your bank account, or what the employer paid you. They do not get individual transaction information, cash withdrawals or similar details.
I was under the impression that the IRS has access to all your bank account transactions (or rather, financial institutions are required to disclose that information)?
The thing is, most of this complexity wouldn't be a problem if the tax filing system were sane. We could have had a prefilled webpage back in the 90s very easily. You would just add anything the government missed (mostly deductions) and hit "go".
We can't have this because it would put tens of thousands of accountants out of work, not to mention the damage it would do to tax filing companies. The middlemen must be protected apparently.
The root cause is the tax code itself. With so much in there, it is usually worthwhile having someone find ways for you to pay less tax. Or stretch things yourself for the same reason. (I also don't think anyone considers the tax code fair, providing yet another reason to exploit it.) The last number I saw was $12bn a year spent on filing taxes. It would be nice if that was deducted from the pay of the politicians as they'd have an incentive to actually fix things.
If I somehow became president, I'd tell congress to cut the tax code by 10% a year. If they fail to do so, then every 9th paragraph would be automatically deleted. Or perhaps have the entire tax code read out and voted on, page by page each year to mandatory attendance.
This is certainly feasible from a technology standpoint. But so is backing up emails, and the IRS doesn't have a very good track record on that comparatively simple task. I'm no fan of filling out taxes each year, but it's reasonable to exercise skepticism when contemplating large US Government IT projects.
The Finnish tax authority switched to prefilled tax forms years ago - I have literally never had to do my taxes unless I have wanted to report some extra deductions. Usually I don't bother. You don't even have to provide receipts for your deductible expenses, just store them for some number of years for the purposes of a potential audit (a mostly hypothetical scenario for a middle class private person.)
Could I just call out David Williams, Intuit's Chief Tax Officer, for making statements that range from disingenuous to despicable. I mean, he may coach his kid's little league team and be a wonderful co-worker, but could you imagine having a job that required you to actively lie and make tens of millions of people worse off so that you can make more money?
'And rather than download people’s financial data from government sources — which Mr. Williams said might not be very secure — Intuit prefers to connect its systems to banks, employers and other private companies to obtain taxpayers’ information, he said.'
Because Revenue/Tax collection services in many countries operate on the principle of "guilty until proven innocent", they simply view every individual/company as being guilty by default and it is the job of that entity to prove they are not (hence lack of motivation in pre-filling forms as is suggested in article)
The same line of thinking is also why the tax code is so complicated and seems to always get more complicated, it becomes almost impossible to become tax compliant for average person/company since there are so many caveats and loopholes and exceptions and so on, tho it also leads to employment for armies of accountants, advisors etc and of course the people working for Revenue/Tax entities themselves. Why would the give us simpler tax codes and procedures when it can put them out of job? Reminds me of CIV quote "The bureaucracy is expanding to meet the needs of the expanding bureaucracy."
I'm in the Midwest USA, I work a 9-5 day job (W2) and brought in $45k in side income freelancing (1099) last year, with a few grand in expenses. I own a house (home office deduction, mortgage interest, etc) and have two kids (deductions), trade stocks for fun (dividends, capital gains/losses). I paid my brother $5k as a subcontractor on a project.
Admittedly, as a sole proprietor my taxes are simpler than many business owners' taxes would be, but their considerably more complicated than the average Joe's. My accountant charged me $135 to handle everything for me. He's been doing business with my family for years, but I'm more than happy to pay him and he seems to do a pretty good job of finding me deductions.
Is this uncommon? Are reputable tax accountants that hard to find, or are they really that expensive? I can't think of a reason I'd buy TurboTax or anything else when I can have someone with 30+ years experience taking care of it for me...
I would have expected closer to $250 to $300 from a decent accountant for your tax work. $135 is a pretty good price, if we're talking, say, two hours of total billing time.
I think it's very easy to find good tax accountants, it just becomes a pricing matter. I think you're getting a great deal and I'd absolutely stick with your accountant.
Another issue, before we even talk about letting the IRS filing for you, is the amount of redundant paper work and mailing.
Entities are required to provide your W2, or 1099, or whatever have you through the mail. They have to provide several copies as well.They still provide a 'send to the IRS with your return' copy, which is not required, but also redundant again by the amount of people electronic filing.
The flow of -> entity printing the documents -> mailing them -> individual then either entering in themselves or having somebody else prepare their taxes -> the information is, for the most part, entered into the computer via plane ole' data entry...by a person -> the return is e-filed to the IRS...who already has an electronic copy of said document...from the Entity that sent it to you...
Let's face it, before we even debate about letting the IRS just do it for us...let's at least get them to streamline the process. The IRS single handily keeps the Post Office in business, not to mention the cost and time/labor expense of the tax payers. (at least we get to deduct tax prep cost...if you can actually itemize..)
Let's get the basic forms first. The IRS should have an easier method of somebody getting the information about them that was sent in from entities electronically. Set up an API, I'm sure the NSA will let them use their server farms... This alone would probably eliminate the need for 80% of the population to ever have to file. All Capital gains will be in, unless the basis was not submitted to the IRS of course.
Now, I don't see a blanket, "The IRS will file your taxes for you" for everyone. Most people who have K1's or Sch C's, etc, will most likely need to make estimated payments. Many of the decisions on what to classify things and best place to 'deduct' them can become an art. But that is not going to apply to most people.
I've probably repeated some stuff in the article, I only skimmed it.
First, the IRS has already screwed my taxes up with faulty assumptions - three times over the last decade. Each time it's been a huge pain to correct. I simply don't trust them to get it right.
Second, I don't particularly trust them to notify me when there's something in the tax code that works in my favor. They're not going to file your 83b elections for you. They certainly aren't going to tell you about, say, the special rules for the Qualified Small Business Stock that you've held for five years. However, they'll happily take your overpayments if you don't know about these rules yourself.
Third, I want everyone to be more aware of the taxes they're paying. You're not going to get informed citizens and intelligent voters if the system's set up to hide the financial consequences of their voting decisions. It'd be better for America and American politics if we moved in the opposite direction, and got rid of automatic tax withholding.
How do you feel about this quote from the article?
“Imagine if your vehicle registration fee was done the same way,” Mr. Bankman asked in a recent interview. “Imagine if the state said, ‘Go to your car, find your VIN number and then look at this table that has different tax rates to find out how much you owe.’ If they did, people would probably need to hire an expert for that too.”
It sounds like a huge pain, and I wouldn't want to do it. Neither would anyone else.
On the other hand, huge pains like this are how policy gets changed. If it became more obvious to everyone that this was yet another hidden tax, perhaps there'd be more pressure to eliminate it or make it more rational.
How far would you take it? Would you support a law that mandated that taxes had to be paid in person, at one central office, with a long line in a hot, crowded room, and also they have crying babies and car alarms? That would be an even bigger pain and lead to even more pressure to eliminate taxes.
The thing is, though, I find it cartoonish to force people to calculate and file their own income tax. Especially since many of them just pay someone else (a person or a computer program) to do it for them. Which, in a way, is like yet another tax.
The IRS needs to go away. It is an organization responsible for the execution and enforcement of the enslaving of the American people.
Our tax system has devolved from "let's collectively pay for our expenses" to a system using financial punishment for behavior modification. Freedom my ass.
The other problem is that, through attrition, people have become comfortable with taxing just about anything, even farts:
Not only do we have to kill off or massively reduce the size and influence of the IRS, we need serious controls on how government spends our money. Government is huge beyond belief and grotesquely inefficient. Of course, the crown jewel of this and what probably brought it home for a lot of people is the ridiculous cost and mess that the Obamacare website became.
How should we pay for running the country? A flat tax is one idea. A consumption tax is another.
I personally think that no government should take more than 20% of your money. In our case this would include state and federal added up. Government needs to be the most frugal, efficient and effective enterprise in a country, not the most wasteful, inefficient and ineffective organization, which is what we have.
This is "The United States of America". It was intended as an association of states. Get rid of the creeping direct taxation, and just bill the states. Let each state decide how its share of federal revenue is raised (income tax? sales tax? mineral rights sales? port fees? smart investing? etc).
The IRS should be two guys who work a couple days twice a year. When the Congress & President pass a budget, these two take the bottom line revenue needed, divide by number of congressmen, aggregate by state, and send each Governor a bill (overnight courier); next day they confirm the bills were received. On April 16, they open the IRS mailbox, cash the checks for each state; next day they confirm the funds transferred, and inform the President which states did/didn't pay on time (subject to Executive enforcement). Done.
Lobbying is how laws get made and unmade in the US. If you want laws changed, you had better have a lot of money or the right connections. Your voice might as well be non-existent if it's not accompanied by a campaign contribution.
Anti-government ideologues don't want taxes to be easy because they want people to complain and hate the government more. Anti-government ideologues are why we can't have a lot of nice things.
My dad works for the IRS. Got an SMS from him the other day: "I owe 11k!” Guess working for the IRS is no guarantee of getting your withholdings right.
>No other industrialized country asks its citizens to jump through as many hoops to calculate their taxes as ours.
Except for Canada? The same sort of situation exists here. The Canada Revenue Agency enthusiastically supports the private tax preparation companies. It's pretty much the same deal except perhaps a little worse. The private companies will extend you charity here as well, but if you have any amount of income you don't even get online forms to fill out.
Presently in Canada the only way for a citizen to file their own taxes is by filling out paper forms. Ironically the easiest way to get the forms is to download them off the internet from the CRA website. Then you fill them out and mail them.
The really ridiculous thing is that since the CRA already has all the information it doesn't really matter how you fill out the forms. Just get your deductions and withholding on there and you are good. You can put whatever other gibberish on there you want.
I actually file on paper on the principal that I don't want to support a corrupt system. This year I am considering just drawing pictures on the parts that are ignored and putting down a hundred billion jillion dollars as my refund... I strongly suspect that the people made to do the data entry could use a bit of entertainment.
153 comments
[ 3.1 ms ] story [ 198 ms ] threadhttps://news.ycombinator.com/item?id=9380232
[1] http://capitolweekly.net/turbo-tax-maker-intuit-again-is-mir... (link from the article)
[2] http://www.propublica.org/article/turbotax-maker-linked-to-g...
Depending upon how complicated your taxes are, it can also be easy to do them by hand. I only recently started using turbotax because I was tired of doing it by hand. My taxes are fairly simple though.
Here's an illustration. Say you sell a security that shows $X,Y00,000 proceeds of which $X,000,000 is cost basis and $Y00,000 is capital gain. It's really important to make sure only the $Y00,000 gets included in any taxable number. The 'math' in question is that this amount should be taxable and this amount shouldn't be, and the checking is that it was correctly expressed to Turbotax.
Turbotax will not make mistakes regarding the business logic of the forms. It will correctly "add the value from line 19d on schedule XYZ" every time. But Turbotax can't know that you entered the data correctly in the first place. It has no underlying concept of "this $Y00,000 shouldn't be taxed" or that you should have used schedule UVW instead of XYZ. It's just a fancy flowchart shuffling some spreadsheet cells. This is why you want to double-check Turbotax's operations using the form views that it provides. The form views are Turbotax's step-through debugger. If you think Turbotax is getting something wrong, it's much more likely that you misunderstood a question and entered something that wasn't what it was asking for.
Perceived bugs in Turbotax are right about in the same space as "blame the compiler" bugs in programming. They can exist, and poor messaging can create false positives, but 99% of the time, it's the user providing some kind of bad input instead.
For my IL return it would not allow me to e-file b/c I didn't have the PIN which is assigned the first year you file. However the system's workflow entered an infinite loop and I had to just abandon and click "print return" order to continue.
> Turbotax will not make mistakes regarding the business logic of the forms.
I do not think this is true. It will let you enter arbitrary values in fields on the form that you should not have edited. It does not re-check and delete unnecessary entries from the forms either, though in some cases these problems trip up the debugger and it forces you to delete the return and start over.
If the forms had truly thorough input validation it would be a very confidence-inspiring product to use.
This year, I just said "fuck it" and went to H&R Block, because I'm just done with doing it myself. Someone else who does this all day can do it faster, yell at the computer less, and I'll get the same results.
All of this should be automated by now, but no...
I've used TurboTax this year and it's frighteningly stable.
Anecdata isn't terribly helpful.
I think for a professional tax preparer it would be great but the wizard left me scratching my head wondering if I'd filled it out correctly.
Worth checking out if you're looking for something else next year.
http://slickdeals.net/f/7774581-taxact-ultimate-bundle-delux...
No.
Stop with these stupid stop-gap measures. Income taxes are inherently flawed on so many levels, it's absurd. They're difficult to calculate, easy to cheat on, don't tax swaths of people who don't have a traditional income, cause grief every year and untold resources to calculate, verify, audit, etc.
Just stop.
A national sales tax, property tax, or frankly, any other option, would be better by far.
Also, if the government has all the information necessary to do your income taxes properly, then it'll literally take you 5 minutes to fill out the form. You receive the same forms they do, just plug in the numbers. The PDF version will calculate everything for you.
The problem is that the vast majority of people have DEDUCTIONS and the government has no idea what those are, so this wouldn't work for them.
The self employed and wealthy probably would still need to do their taxes. Self employed is only 7% of workforce. Even their taxes would be easier because they would know all of the info that the IRS collected and wouldn't have to collect the paper forms.
> national sales tax
Haha, good luck with that. Sales taxes are substantially easier to cheat than income taxes for most people.
Nationalizing sales taxes just provides more incentive to cheat.
https://craigslist.org
OR has no sales tax, everyone goes crazy about it, yet they have one of the highest income taxes in the nation.
Even for the poorest, it's very difficult for that to be a good bargain.
Even if you spend every dime you make, your expenditure will almost never be completely sales-taxable (in our current system).
The national, tax-everything sales tax doesn't tax idle money. People with money have lots of it and can spend it non-domestically.
There's no such thing as idle money. As soon as you deposit it in a bank, it gets loaned out to someone else who spends it.
> People with money have lots of it and can spend it non-domestically.
Even now, you're obligated to report any purchases made outside the jurisdiction and pay sales taxes on that yourself. I'm not suggesting we abolish the IRS. They should still be around and do audits and enforce the law, especially in such cases.
Not true; actual state income tax isn't its nominal rate on all income (state income tax usually starts with AGI and then has state deductions and credits). So 6-8% on some subset of expenditures may be more, equal, or less than 6-8%on subset of income.
Heck, its not even true without considering that; it would be -- without considering that income tax excludes some income in the same way that sales tax excludes some expenditures -- if expenditures had to be less than income, but its possible to run a deficit as long as your income is sufficient to pay the increasing debt service cost, which (particularly with an increasing income over time) can be an arbitrarily long period of time.
This is false. Food and clothing is exempt from sales tax. At least it is in my state and that's how it should be.
If they're genuinely poor, that's what they're spending their money on, so they wouldn't get taxed at all.
Doing taxes in the US feels like going through a garbage can of bad social program ideas, bureaucratic waste, etc. Then to make matters worse we get expensive wars...
Banks file forms. Charities file forms. Employers file forms. They know how many kids you have, they know how old they are, they know if you own or rent, and how much your mortgage is and the interest being paid. They have info on your outstanding student loans. Except for the edgiest of edge cases, there really should be no surprises. Even a moderately powerful desktop should be able to precalculate the taxes for everyone in the country in less than a day.
Why is filing taxes even a thing anymore? Hell, at this point, I wouldn't be surprised if Facebook could do our taxes for us due to all of the info they have. Our tax system is stuck perpetually in 1960, and it's just sad to watch.
The government bitches about the digital age stealing their income, but they're not even trying to adapt. Nobody anywhere should have to "file" anything. The very act of buying and selling means it's already on file somewhere, and that means a live view is possible.
Unless you're using computers from 1960...
Any tech worker probably saves money by itemizing in California too. State taxes and salaries are high enough for that.
I could see that homeowners in CA would benefit by itemizing, however a simplified system could make something like mortgage interest much easier to factor in.
My not well studied understanding is that people price homes based mostly on the monthly payment they will make, so the mortgage interest deduction tends to make them willing to pay more for a given home. Rising prices do not make housing more affordable.
As with any subsidy, you'd expect both an increase in the market clearing price of the subsidized good and an increase in the number of units sold at the market clearing price (that is, it increases both price and affordability), unless you have either perfect elasticity or perfect inelasticity, neither of which seems likely with homes.
> The stated purpose of making mortgage interest deductible is to make home ownership more affordable. We should take a careful look at whether it accomplishes that goal.
To the extent it does, it does only for people near the boundary of being able to afford to own a home, and does so (ceteris paribus) at the expense of everyone who isn't paying interest on a mortgage, including people too poor to do so even with the deduction -- who it therefore makes less likely to be able ever to afford a home.
You'd do at least as much to make home ownership -- but also lots of other things -- more affordable by getting rid of the deduction and cutting base rates on below-median incomes such that the net result was revenue neutral before considering indirect economic effects.
I would be happy to see the deduction go away along with all other deductions :)
That much I absolutely agree with. A flat tax would require a single tax form the size of a business card.
> The percentage of people who save money by itemizing deductions is extremely small, as is the percentage who claim (or are eligible for) any of the more generous deductions.
Not true at all. Anyone who owns a home itemizes to deduct interest. Anyone who pays enough state taxes itemizes because you can deduct state tax payments on your federal taxes.
I do agree that taxes should be drastically simplified, but in the process they would also need to be lowered so that the average person pays the same or less in taxes as they would have with today's high taxes and deductions.
So yes, a large percentage of people are just getting the standard deduction.
So, yes, plenty of people in the "we can afford expensive houses" category are in position to deduct. Majority of the nation? Not so much.
Flat isn't the simplification -- elimination of the billion deductions is the simplification.
> Flat isn't the simplification -- elimination of the billion deductions is the simplification.
If you have deductions, it isn't a flat tax. "Flat" typically implies both rate and lack of deductions.
If you took current government revenue from income taxes as a percentage of total personal income and just used that as the flat tax rate, that would indeed be quite unreasonable, mostly because that revenue number is far too high. On the other hand, a flat rate in the 4-5% range might not be unreasonable.
Or, alternatively, a simple formula that would still count as "flat tax":
Where "floor" is a threshold below which you pay no taxes. That would address the set of people for whom even a tiny increase in taxes could make the difference between making ends meet and not.I don't know where you're getting that. The only number I can find on it is an unsourced assertion that more than 60% take the standard deduction [1], which still implies that on the order of 1/3 of taxpayers itemize. Hardly "extremely small".
[1] http://abcnews.go.com/Business/tax-tip-choose-standard-deduc...
I think there's some logic in this objection, but then again, I don't see these same complaints levied against the other "post-billed" taxes people deal with, like property, vehicle, and so forth.
Really, there's no likeable side in this. The tax prep software people (never buy Intuit!) have a vested interest in keeping the tax code complicated, and decent portions of the government has a vested interest in same.
The solution to both problems is a massive simplification of the income tax code - too many people opposed to it for that to ever happen, though.
Doesn't the government do this anyway? Try claiming that you owe $0 and see how that goes over. The individual taxpayer has already had the money withheld and then submits paperwork after the fact just in case any of the business entities involved failed to submit their required documentation.
Either way, I'm stuck filing the #($&ing paperwork.
AFAIK, they aren't liable for under withholding if they withhold correctly according to the W-4 signed by the employee, even if the W-4 claims things (e.g., "exempt" when the employee does not meet the qualifications) that are not accurate.
Submit a signed W-4 [0] to your employer with the word "Exempt" on Line 7.
Of course, by doing so you also certify that you are actually meet the legal requirements stated on the form for $0 withholding, under penalty of perjury, so you obviously should only do it if, you know, you actually qualify for it. But that's how you do it.
[0] http://www.irs.gov/pub/irs-pdf/fw4.pdf
Is it a 'conflict of interest' for restaurant to both collect money for my bill and tell me how much my bill is? No. The rules are clear so anyone can audit their own bill if they feel they're being cheated.
If the government just said "You owe $673.25" and wouldn't tell you why or how they got to that number, then I would see a conflict.
A restaurant charge is simple - here's what you ordered, here's what each thing costs, here's the total. If you really suspect shenanigans, you get a copy of the menu to validate against.
Property tax is usually pretty simple, as is vehicle registration. Both can be described in a couple of paragraphs.
The problem right now is that even if the forms were precalculated, the IRS doesn't necessarily know about the deductions you're entitled to, and claiming those is a far more intricate process than simply filling out your PII (1040) or your wage info (W2).
Here's a relevant example. I just started going to school again at the end of last year (November). A run through with TaxAct/HR Block showed me as owing about $600 before any deductions or credits - you have to tell them about those. The fact that I started going to school gave me the "lifetime education credit", and turned a $600 payment (that I could not afford at the time, and was somewhat stressed about) into a roughly $2K payday.
Without the software, or paying an accountant, I wouldn't have known about that, and paid $600 that I didn't need to pay.
The lifetime education credit is calculated based on the 1098-T that your school had to file with the IRS.
I had to help two friends navigate TurboTax after they couldn't figure out where to enter a 1098-E (student loan interest), so my anecdotal evidence is that TurboTax easily misses certain items when hey ask "Did you go to school this year", but not "Did you have education expenses" (or something similar). Without someone who had already used the software to enter similar items, they may not have been able to get that credit.
My main complaint with TurboTax (other than the fact that I have to use software to file taxes and buy a new version every year) is that I am charged to e-file at the state level.
This is what I mean. Comparing income tax filing (with a W2 and a 1040 by mail, with nothing else, that's at least 3-4 pages of work, with no guarantee that you're paying what you ought to be) with a restaurant bill (an itemized receipt of things you bought) is fundamentally dishonest.
Every comparison made is against single charge, a single payment, based on a usually simple formula, rather than an entire freaking body of law.
I don't. The IRS is going to calculate how much people owe in any case. The question is whether they provide all the information they've collected first, and calculate the results based on that, and provide it to the taxpayer who can either accept it or note any changes/additional information and return it, or they make the taxpayer do it first from scratch (or pay someone else to do it, or pay for a tool to do it), and then the IRS goes and does it in anyway for every taxpayer taking into account the information they have from the taxpayer and what they have received separately.
In either case, the IRS is absolutely going to calculate how much people owe. That's not even the choice that is at issue. So the objection to one side of that choice that the IRS calculating how much people owe is a "conflict of interest" is a non-sequitur; it simply has no bearing on the choice.
I post this not to defend Intuit, but to clarify why the tax code is complicated. It's not because Intuit goes to Congress and says "please make this thing complicated." It's because millions of people and companies each go to Congress for their pet issue.
Norquist objects to pre-filled tax forms because he wants people to think hard about their taxes at least once a year. The theory is that if paying taxes is easy and automatic, it will be harder to argue for simplification. No one will care if things are complicated if they can just push one button and forget about it.
It's part of a larger ongoing debate: if government services work so well that citizens don't have to think about them, will that have the side effect of reducing citizen engagement?
It's not so different from the tech concerns about Apple's iOS ecosystem. Will the super easy, super controlled experience of the iPhone result in fewer kids thinking about programming?
It seems to me an altogether more sensible approach to have them make available the records they have for me, and I can check them, or ask someone to check them, or whatever. I'm tired of the fact that in 2015, I am still waiting until sometime in February to get that one piece of paper about my house mortgage before I can go off and pay someone to do a bunch of mindless redundant (see above) paperwork for me.
I'd much rather my financial planner just pull up my information, and file adjustments on my behalf, etc, and go about my business.
Please don't insinuate that someone hasn't read an article. "Did you even read the article? It mentions that" can be shortened to "The article mentions that."
Note also - the article doesn't mention any of my opinions or preferences in it. So no, not everything I sated was in the article by the fifth paragraph.
edit - the parent originally started with something like: "I suggest you read the article before commenting". I'm leaving the above as is, because I don't think substantially changing a comment after people reply to it is good behavior.
http://www.irs.gov/Individuals/Get-Transcript
If the IRS has any documentation on you, it's available on the web. This includes notices, etc. sent out.
I used it this year to verify my tax filings.
If you don't match, then the IRS will either audit you or send you a proposed correction (along with penalties); i.e. once you fail to match, then the IRS is allowed to show you the correct calculations.
This is an incredibly convoluted system.
Of course you can get your overpaid taxes back by means of the tax return - but a lot of people don't have the money or time or knowledge to do that.
The overpaid money is to the government if requested back, an interest-free loan - if not requested back, a gift.
If the government would now tell the IRS to fill out the form for you - then there would be significantly less income - due to more accurate taxation.
This is not true at all. You decide how much money will be deducted from each paycheck by filling out form W-4 and similar state forms. You can make withholding adjustments after each paycheck.
IRS will penalize you if you "prepay" too little (for instance, if you owe them more than 10% of your total tax), but there nothing that prevents you from not giving them interest-free loan.
In case of doubts, you can book (again, online, with a digital certificate) an appointment with the local "hacienda" branch on one of the available slots and have a clerk filing it for you.
The last time I was there, the clerk had me deduct the rent, when I didn't know I was eligible.
I have childhood memories of my parents being immersed in files and files of esoteric looking forms filled with numbers for days on end, and dreaded filing my first taxes.
Progress!
Our government seems to think computers are operated entirely via witchcraft. I doubt we'll get something like that before 2050.
Obama could force Congress' hand via an executive order, to get the ball rolling on tax reform. They would dive in to begin fighting for their interests rather than be left behind. He won't do it because he's just as susceptible to lobbyists as any of the other major politicians in DC.
In the UK, as stated for other countries, I would just use Pay As You Earn, where all taxes were extracted at the time of pay check, and would owe 0GBP at the end of the year. My Californian wife was astounded by this. "How do you know they've not got it wrong and screwed you?!" "Because I trust they got it right." "Why would you do that?!"
My read of the British is that they might not like the government or politicians, but they generally believe that government agencies get things to the letter of the law more often than not. You can disagree with the tax law, but you assume that the tax man is taking the right amount as governed by that law.
You can't pass tax reform in the US because enough of the citizenship wouldn't accept it.
- When do you need to accept your return or settle your outstanding balances by?
- How are business taxes handled?
- How complicated are your tax codes?
- Your current-year preliminary info becomes available online in November, and is updated continuously as the tax authority gets new information. You can log in at any time and correct things, declare unreported income, declare eligibility for commute subsidy, etc. The "regular" period for making such additions/corrections is through the end of February of the following year.
- In the first week of March of the following calendar year, you get a PDF sent to you with the "final" tax computation based on what is in the system as of that date. The tax computation is fairly simple for most people; for me, this is a 3-page PDF, of which the actual computation takes up 1.5 pages.
- If the form you get in March is correct and you're owed a refund, you don't need to do anything; the refund will be direct-deposited one month later (i.e. first week of April). If there are errors or omissions and/or you owe money, you have until May 1 to correct and/or settle it.
This year I got it in early March, and it's due by mid-May.
> - How are business taxes handled?
Pretty much all businesses employ an accountant that takes care for the basic stuff (paying and declaring salaries), and most also have a CFO - usually someone with a legal decree - who knows how to optimize the tax stuff. Every large corporation of course have a whole department of internal accountants and lawyers.
> - How complicated are your tax codes?
Not too simple at least! Multiple types of tax for different types of income (salary, capital, property) and the tax level depend on factors like municipality of residence, membership in a church, total income earned, sums and types of loans outstanding etc. If you collect social benefits, they further complicate as some are taxable and some not. There are also some "tax-like" fees payable by your employer, some of which are deductible in personal taxation and some not. And this is just what I know of personal taxation, the corporate taxation is a whole world of its own.
I don't think the issue here is that our taxation would be so much simpler - and anyway the IRS probably has disproportionate R&D budget compared to a small European country.
Look at sales tax just for California - http://www.boe.ca.gov/sutax/pam71.htm - and that table of quicklinks should frighten you. That is just scratching the surface. For example sales tax for in person transactions is charged based on the address of the store. Unless you buy a car, in which case it is your home address.
Two other factors apply. One is an American mentality that doing minor things against the law isn't that wrong, and being caught is where it becomes real. An example is speeding - it almost seems a contest of wits to not get caught, rather than fixing the limits or realising why they exist. Is it wrong to lie on your tax return about something, where the odds of getting caught are very low, and everyone else is doing it anyway? An example of that is how people call Amazon sales tax free because they are out of state. The supreme court says yes they are sales tax free (to not hinder interstate commerce), but then states charge a "use tax" which happens to be exactly the same as the sales tax. Very few people admitted to their out of state purchases since they were so unlikely to get caught.
The final factor is a distrust of government. They are seen as plodding, corrupt, useless, expensive, political, uncaring and largely pointless. They are very rarely seen as an instrument of voter will. This is what provides the perennial source of jokes - the DMV (department of motor vehicles), the IRS, city hall and all that. Who would trust government to get things right?
So tax returns turn into a contest. What do people think they get away with? Which of the many rules will they obey to the letter? What are their neighbours and others getting away with? Was that really a business lunch? How am I paying more tax than I need to?
Despite their values, neither of the main two political parties do anything to fix this. They are however happy to keep adding to the piles of laws, which makes it more expensive to comply, and increasingly unfair.
I often end up paying fines on my returns. This is not because I am a bad person, and I actually try very hard to get it all correct. It is just cheaper than doing some things the right way, and fairly normal! Some of those fines are also because I don't have a time machine, and I couldn't actually do things correctly without one.
(Note that factors above are generalisations, and don't apply to every last person.)
This I find to be the absolute dumbest reason of all. The IRS already knows everything about your income that you would be telling them anyway.
Not even close. For example they don't know how much you paid in state taxes, and which portions of that are also considered okay for fed taxes. Eg in California a portion of your annual vehicle registration fee can be taken against state taxes. Do the feds also allow that?
They don't know what you consider business expenses. They don't know how much of your house you used for business purposes. They don't know where you resided during the year and the tax treatment of the various places you did live. They don't know about your moving expenses.
They don't know about income you received in cash. They don't know about your Amazon purchases. They don't know about your medical expenses. They don't know about your losses.
They don't know about your foreign income or assets.
They don't know about dependents, or how they have changed. Or your marriage, or divorce. Or how you want your married taxes to be treated (there are at least two different ways).
That is just scratching the surface of the tax relevant things - there are a huge amount more. As an individual you couldn't get your tax return 100% correct, and the government certainly can't.
Edit: various institutions and employers are required to file information with the IRS. However this is big picture information - for example how much interest you were paid on your bank account, or what the employer paid you. They do not get individual transaction information, cash withdrawals or similar details.
We can't have this because it would put tens of thousands of accountants out of work, not to mention the damage it would do to tax filing companies. The middlemen must be protected apparently.
If I somehow became president, I'd tell congress to cut the tax code by 10% a year. If they fail to do so, then every 9th paragraph would be automatically deleted. Or perhaps have the entire tax code read out and voted on, page by page each year to mandatory attendance.
'And rather than download people’s financial data from government sources — which Mr. Williams said might not be very secure — Intuit prefers to connect its systems to banks, employers and other private companies to obtain taxpayers’ information, he said.'
David Williams knows perfectly well that every US taxpayer's tax transcript (showing W-2s, 1099s, etc.) are available online at http://www.irs.gov/Individuals/Get-Transcript . Intuit is using security as a cover for their regulatory capture <http://en.wikipedia.org/wiki/Regulatory_capture> of the US tax paying system.
Because Revenue/Tax collection services in many countries operate on the principle of "guilty until proven innocent", they simply view every individual/company as being guilty by default and it is the job of that entity to prove they are not (hence lack of motivation in pre-filling forms as is suggested in article)
The same line of thinking is also why the tax code is so complicated and seems to always get more complicated, it becomes almost impossible to become tax compliant for average person/company since there are so many caveats and loopholes and exceptions and so on, tho it also leads to employment for armies of accountants, advisors etc and of course the people working for Revenue/Tax entities themselves. Why would the give us simpler tax codes and procedures when it can put them out of job? Reminds me of CIV quote "The bureaucracy is expanding to meet the needs of the expanding bureaucracy."
Admittedly, as a sole proprietor my taxes are simpler than many business owners' taxes would be, but their considerably more complicated than the average Joe's. My accountant charged me $135 to handle everything for me. He's been doing business with my family for years, but I'm more than happy to pay him and he seems to do a pretty good job of finding me deductions.
Is this uncommon? Are reputable tax accountants that hard to find, or are they really that expensive? I can't think of a reason I'd buy TurboTax or anything else when I can have someone with 30+ years experience taking care of it for me...
I think it's very easy to find good tax accountants, it just becomes a pricing matter. I think you're getting a great deal and I'd absolutely stick with your accountant.
Entities are required to provide your W2, or 1099, or whatever have you through the mail. They have to provide several copies as well.They still provide a 'send to the IRS with your return' copy, which is not required, but also redundant again by the amount of people electronic filing.
The flow of -> entity printing the documents -> mailing them -> individual then either entering in themselves or having somebody else prepare their taxes -> the information is, for the most part, entered into the computer via plane ole' data entry...by a person -> the return is e-filed to the IRS...who already has an electronic copy of said document...from the Entity that sent it to you...
Let's face it, before we even debate about letting the IRS just do it for us...let's at least get them to streamline the process. The IRS single handily keeps the Post Office in business, not to mention the cost and time/labor expense of the tax payers. (at least we get to deduct tax prep cost...if you can actually itemize..)
Let's get the basic forms first. The IRS should have an easier method of somebody getting the information about them that was sent in from entities electronically. Set up an API, I'm sure the NSA will let them use their server farms... This alone would probably eliminate the need for 80% of the population to ever have to file. All Capital gains will be in, unless the basis was not submitted to the IRS of course.
Now, I don't see a blanket, "The IRS will file your taxes for you" for everyone. Most people who have K1's or Sch C's, etc, will most likely need to make estimated payments. Many of the decisions on what to classify things and best place to 'deduct' them can become an art. But that is not going to apply to most people.
I've probably repeated some stuff in the article, I only skimmed it.
First, the IRS has already screwed my taxes up with faulty assumptions - three times over the last decade. Each time it's been a huge pain to correct. I simply don't trust them to get it right.
Second, I don't particularly trust them to notify me when there's something in the tax code that works in my favor. They're not going to file your 83b elections for you. They certainly aren't going to tell you about, say, the special rules for the Qualified Small Business Stock that you've held for five years. However, they'll happily take your overpayments if you don't know about these rules yourself.
Third, I want everyone to be more aware of the taxes they're paying. You're not going to get informed citizens and intelligent voters if the system's set up to hide the financial consequences of their voting decisions. It'd be better for America and American politics if we moved in the opposite direction, and got rid of automatic tax withholding.
“Imagine if your vehicle registration fee was done the same way,” Mr. Bankman asked in a recent interview. “Imagine if the state said, ‘Go to your car, find your VIN number and then look at this table that has different tax rates to find out how much you owe.’ If they did, people would probably need to hire an expert for that too.”
It sounds like a huge pain, and I wouldn't want to do it. Neither would anyone else.
On the other hand, huge pains like this are how policy gets changed. If it became more obvious to everyone that this was yet another hidden tax, perhaps there'd be more pressure to eliminate it or make it more rational.
Previous discussion here: https://news.ycombinator.com/item?id=9380232
Mods, is it possibly to merge these two discussion?
The IRS needs to go away. It is an organization responsible for the execution and enforcement of the enslaving of the American people.
Our tax system has devolved from "let's collectively pay for our expenses" to a system using financial punishment for behavior modification. Freedom my ass.
The other problem is that, through attrition, people have become comfortable with taxing just about anything, even farts:
http://dailycaller.com/2014/04/11/republicans-warn-of-a-fede...
Not only do we have to kill off or massively reduce the size and influence of the IRS, we need serious controls on how government spends our money. Government is huge beyond belief and grotesquely inefficient. Of course, the crown jewel of this and what probably brought it home for a lot of people is the ridiculous cost and mess that the Obamacare website became.
How should we pay for running the country? A flat tax is one idea. A consumption tax is another.
I personally think that no government should take more than 20% of your money. In our case this would include state and federal added up. Government needs to be the most frugal, efficient and effective enterprise in a country, not the most wasteful, inefficient and ineffective organization, which is what we have.
The IRS should be two guys who work a couple days twice a year. When the Congress & President pass a budget, these two take the bottom line revenue needed, divide by number of congressmen, aggregate by state, and send each Governor a bill (overnight courier); next day they confirm the bills were received. On April 16, they open the IRS mailbox, cash the checks for each state; next day they confirm the funds transferred, and inform the President which states did/didn't pay on time (subject to Executive enforcement). Done.
Except for Canada? The same sort of situation exists here. The Canada Revenue Agency enthusiastically supports the private tax preparation companies. It's pretty much the same deal except perhaps a little worse. The private companies will extend you charity here as well, but if you have any amount of income you don't even get online forms to fill out.
Presently in Canada the only way for a citizen to file their own taxes is by filling out paper forms. Ironically the easiest way to get the forms is to download them off the internet from the CRA website. Then you fill them out and mail them.
The really ridiculous thing is that since the CRA already has all the information it doesn't really matter how you fill out the forms. Just get your deductions and withholding on there and you are good. You can put whatever other gibberish on there you want.
I actually file on paper on the principal that I don't want to support a corrupt system. This year I am considering just drawing pictures on the parts that are ignored and putting down a hundred billion jillion dollars as my refund... I strongly suspect that the people made to do the data entry could use a bit of entertainment.