I love the quote from the Intuit VP, which complained that it would end up “costing billions of dollars in taxpayer money.”
The current system costs billions of dollars in taxpayer money, it’s just that today those dollars flow to Intuit. The IRS one should end up costing less overall, even at govt contracting rates.
Because proper journalism should allow all voices to have their say. If you wanted a one sided view on something, you wouldn’t need journalists, the press releases and self reported (and self serving) statements by interested parties would be plenty.
In general I agree with your position. But for cases like this, these kinds of statements have been so common from H&R Block and Intuit, and the topic has been wending its way through the system for a couple of decades that if you were a journalist short of time it would be fine to quote some other public statement from either of them.
The actual article is about something more interesting: that they are piloting it with states that have state income taxes as well, and that they will be rolling it out in phases (the right thing to do). The response to Intuit isn't about the meat of the topic.
The IRS taking this on this way has incentive to automate and make taxes as easy as possible. Intuits incentive is to keep taxes complicated and as manual as possible.
Therefore, the most likely outcome is that the IRS taking this on will most assuredly result in saving tax payer money.
They make the tax code complicated so they can leverage it.
This is why they can't get Trump on tax issues. Trump pays the best tax people to cover him. If they nailed Trump on anything they'd have to nail a lot of other people too, who are otherwise untouchable.
A flat tax would work just fine, except for all the people in the tax industry that is. You just level the flat tax until you get the equivalent revenue from the current scheme.
That’s just the classic anti public sector service line in general.
Whatever your feelings are about single payer healthcare, it’s incredibly disingenuous when politicians debate against it by bringing up the cost of such a system, without comparing it to the current cost of the private system it would replace.
Or when they just ignore that we already have socialized healthcare, just in the worst way possible, at the Emergency Room level only. So no preventative care just extremely expensive emergency care.
Not just no preventative care, but no real care. Emergency rooms treat you to the point where you're stable. They aren't going to treat you to the point where you're healthy again.
A key factor is that insurance companies are a big sector, and are in everybody’s pension funds. This is one of the reason that the oil companies get subsidies (“green hydrogen” which makes no scientific sense) in the anti-climate-change legislation.
Intuit and HR Block are too small to present that level of opposition.
The gain per person from having non profit single payer would probably still be higher than having that sector nuked from your portfolio unless you owned like millions in shares. And if you did own millions of shares, you’d probably be privy enough to see the writing on the wall and buy into a tech company instead with that money ahead of the collapse and public takeover.
I agree with your reasoning, but don’t think it would play out that way.
If a big sector from the S&P sank it would drive an apparent large secular reduction in the overall market, and in particular in the index funds. And opponents would seize upon it and beat the drums.
Most of the financial news is incoherent and lazy — this would be just another example.
I hope the IRS is building in-house competency for this project. So much public sector inefficiency is because we farm out projects to the consultant industrial complex.
I don’t get how “big” became a persuasive argument when it comes to the public sector, rather than “ineffective” or “inefficient”. Raw “size” isn’t a good target on its own.
At the end of the day all I care about is that things are done effectively and efficiently, and sometimes maybe we trade those things off so that they can be provided fairly and equitably (such as fire departments, I don’t care if a private sector solution would be more cost effective, I don’t want private companies selectively putting out fires).
That is a meaningless metric on its own. What matters is how much money you have left to spend on things you want to as part of a healthy, happy life.
In the US a lot of things are inefficiently pushed into the private sector, health care being a good example. Taxes + private health care costs in the US are a higher percentage of GDP in the US than in any developed nation yet the results are the worst of the same cohort (OECD).
(This isn’t to say that there aren’t things done inefficiently in government that might be better in the private sector. Just saying that single figures are worthless alone).
It was ~32% pre-pandemic, and excepting for the Great Recession, looked to be stable at ~30%. Considering the governments revenue over that same period, again according to your own source, is also ~30% we're at less than 1/3 of GDP expenditure.
I think that is a reasonable public expenditure for a representative government, especially for the third most populous country on the planet and the largest GDP.
In the 8 years since I lived in the United States my income taxes in other countries have been almost unbelievably easy. Typically I look at the calculated amount provided by a government website, compare it to what I think it should be if there is done discrepancy, upload some receipts or whatever for deductions, then click submit.
It is beyond me why the experience should be any how different in the United States. And don't tell me, oh but there's 50 States which makes it complicated. I've lived in 5 countries in those years, four of which I had to pay taxes and every one was this easy.
"And tax politics make strange bedfellows. Fighting alongside H&R Block and Intuit are anti-tax activist groups like Grover Norquist’s Americans for Tax Reform. H&R Block and Intuit love taxes—that’s how they make their money. Grover Norquist wants to cut taxes wherever possible. But on this issue, their interests are aligned. H&R Block and Intuit want to make it difficult for you to file on your own. The anti-tax activists think that if taxpaying is too easy, voters will be less likely to resist the federal government’s growth. Both want to make it as painful as possible for you to do your taxes yourself."
> This theory was first put forward by economist Bruce Yandle in a 1983 article published in the American Enterprise Institute's magazine Regulation titled "Bootleggers and Baptists: The Education of a Regulatory Economist."[1] Yandle, at the time serving as executive director of the Federal Trade Commission, used the example of early 20th century Sunday closing laws restricting the sale of alcohol to illustrate his belief that "durable social regulation evolves when it is demanded by both of two distinctly different groups" - Baptists, who support a regulation for moral reasons, and bootleggers, who stand to gain economically from a regulation.[2]
Religion is all about who you DON'T recognize.....
Jews don't recognize Jesus as the son of God, Protestants don't recognize the Pope, and Baptists don't recognize each other in the liquor store.
Yes, sacramental wine was legal. Not only that, but the production of sacramental wine is what kept some wineries from going out of business during prohibition.
US taxes were pretty cumbersome before Intuit et al. Intuit wouldn't appear if not that. So your quote may partially explain resistance to change, but not causes.
Taxes weren’t particularly difficult if like most people you were overpaying before this software showed up.
The complexity was originally a way to effectively have different rules for people with accountants than regular citizens thus allowing politicians to shift the tax burden without making the carveouts obvious.
Now days we just blatantly tax people living off investments less, etc. Thus defeating the original purpose of that complexity.
And the reality today is that, if like a lot of people, you just have a W2 and maybe a 1099 or two, while the 1040 form is probably a bit intimidating, it's pretty straightforward if you're just taking the standard deduction as most people do since Trump era tax changes. Basically, if you're eligible for any of these direct-file arrangements, your taxes are pretty easy to file anyway.
I'm all for simplifying tax filing but if you're just filing basic taxes and are willing to forgo any deductions you may be eligible for such as energy efficiency, it's pretty straightforward.
I think a lot of people who complain about the complexity of the US tax code and the "need" for TurboTax would benefit from directly filling out the 1040 by hand one year - most of them would have a pretty easy time doing it. For most people, all you need is a 4-function calculator, your W-2s/1099s, and a pencil, and it will take at most an hour or so.
Where the IRS's UX is really bad for the average taxpayer is all the other forms and instructions that Americans feel the need to read and think about despite none of them applying to your situation. However, I think this is mostly psychological, and Americans are wasting their time and money trying to get ahead by finding a "loophole" that applies to them.
I used to do it with just the 1040 and a spreadsheet.
The problem with that is that there are literally 100 crazy-assed questions that I have to answer in order to fill out all the supplementary worksheets, etc.
For instance: I bought a used EV. Do I take the tax break? Is it a deduction or credit?
Figuring that out will take at least 10 minutes after you find the right IRS bulletin.
Also, we have a roboadvisor, which means we hit all the corner cases for investment income.
Even with turbotax, it takes about 8 hours for our moderately complicated taxes. Just getting the basic stuff that any homeowner with a family has to do takes 2-3.
On top of that, the first year I used turbotax, I found out I had been overpaying ~$200-500 the previous 4 years.
Filing amended returns wasn’t worth it, but paying the intuit mafia would have saved me time and money in the long run.
If I had my way, we would move to a UBI and a flat tax (on income and capital gains).
That reduces the tax code to a two variable equation of a line.
I’d take a scatterplot of the 30-90th percentile of the US’s effective tax rates, and fit the line to that data set with a linear regression.
In addition to creating basic income, this would ensure that the ultra wealthy actually pay taxes.
I think UBI and flat tax are fundamentally incompatible. Reasonable levels of UBI require high taxes, and doing so with entirely flat taxes will be quite punitive on the middle class. I think the vast majority of the population think there is a lot of merit to graduated tax rates as well, charging 50% tax on all of someone's income above $10,000,000 isn't as punitive to any sort of living standard as charging 50% tax on someone's first $30k of income.
If we want a UBI of $24,000/year ($2,000/month) for an adult population of 250 million we are talking 6 trillion dollars in additional government spending. Assume for a minute we can cut 2 trillion in spending so we are talking about a spending increase of 4 trillion. This would mean roughly doubling current government revenues. If you wanted to do so with a flat tax, you'd see rates near the top rate now on all income.
Are people ready for a world where you get $24,000/year from the government and pay something like a 40% tax on all your income? Compared to the current tax code you probably break even at roughly $75,000/year and for incomes above that you'd pay more in tax.
In an in a very high income bracket, as I imagine many here are.
I’ve also lived in “more socialist” countries where I paid higher taxes before moving to the US.
I would have little to no problem passing higher taxes if there was any reasonable assurance that those taxes would go to worthwhile purposes (infrastructure, healthcare, education), and not to the military or pork. Sadly, in America, land of the middleman, we know how unlikely that is.
I would suggest that you are almost certainly in the top 5% on complexity of your tax situation between the roboadvisor, the house, and the EV, if not all of the other things that you are spending 8 hours on. You may be in the top 1% on number of pages in your federal tax return.
Personally, I would love a flat tax, although I would probably pay more under that system. It will never happen, though.
Frankly, this whole thread is evidence of that. There's been a meme since before Intuit existed that tax prep in the US is akin to performing brain surgery on yourself. I do have enough oddball schedules these days that having an accountant is almost certainly a good idea but, honestly, I piggybacked on my parents' accountant for many years when I probably didn't really have a good reason to.
A lot of people have just convinced themselves that getting a Turbotax update or going to the H&R Block booth at Walmart is just one of those annual rituals you have to do if you're sensible.
I'm one of the people you're talking about. I tried it and it had the opposite effect.
I tried to do it with the plain forms once about 15 years ago. Somehow I ended up reporting the same input twice or something? I'm still not sure what I did wrong, but I ended up getting taxed for income that didn't exist. I didn't know how to correct it. I wrote letters and called the IRS probably dozens of times. I spent more than 50 hours poring through documents trying to figure it out. I tried to find an accountant that could understand what was happening. Eventually, it went away. I'm not sure what I did differently or if the IRS just got tired of dealing with me and waived it.
I was probably doing all of this incompetently, but I could not get a "foothold". I have somewhat of a tax phobia to this day.
The problem had something to do with some independent contracting I had done that year. I just resolved not to do that anymore.
Shoot, I accidentally reported the same income twice even with turbotax once because I didn't understand what non-covered shares were. (And in my defense, the broker also didn't show cost basis on the 1099-B either, I was just supposed to know)
I forget when the cost basis reporting requirements got firmed up but there were some point where I had options from a former employer that had gone through a couple rounds of acquisitions and when I eventually sold the shares I ended up throwing my hands up a plugged in some average cost basis that was somewhere in the ballpark and called it a day. It's all pretty automatic these days but it used to often be a real mess to try to do accurately.
Yea cost basis reporting from the broker to you is better now.
Cost basis reporting from the broker to the IRS is still blank for non-covered shares though, which leads to the other common case of "forgot a page of 1099, IRS thinks it's $0 cost basis, sends bill for $10k++, but actually you owe ~$0 if you send in the correct info".
And that's absolutely insane. That's tens of millions of man hours per year spent essentially on rote data entry of data that the IRS already has so that you can submit it to the IRS for them to check against their copy.
I know that I wouldn't, because I don't want to. I'd just pay the amount the IRS says I should pay and call it good. I'd probably be paying more tax than absolutely necessary, but I honestly wouldn't mind that at all -- especially because I'd be saving money over doing the taxes myself (in the sense of time == money) or paying someone else to do them for me.
I mean, if the IRS was wrong about your income and you got audited, you would probably still be on the hook for penalties and back taxes. You're still going to want to spend some time checking that tax form pretty thoroughly.
True, but the same is also true if a tax preparer makes a mistake. Also, the IRS almost always waives penalties (and often interest) unless they think it wasn't an honest mistake.
I'm not bothered by this risk. If a mistake is made and I owe additional taxes, then I'll just pay what I owe. No biggie.
I mean, that is a hell of a life choice, but I guess if you assume that the government is always honest (see the Iraq war and many other things) and the IRS always interprets the documents they receive correctly (which they don't today - I have gotten letters from them which are blatantly wrong), that sounds good.
I understand that an hour is valuable, but that hour you spend checking your tax documents may be the highest-leverage hour of work you do that year.
This implies that I'm taking some huge risk or would be absurdly overpaying my taxes or something. I don't think either of those things are true. In the larger picture, this isn't really that big of a deal.
> I guess if you assume
I assume none of those things.
> that hour you spend checking your tax documents may be the highest-leverage hour of work you do that year.
It would be more than an hour, but the time isn't even the biggest issue. The biggest issue is the stress, worry, and hassle. It's just a basic cost/benefit calculation here, no different than other cases where I accept a level of increased expense or some risk because it costs more than I'm willing to pay to mitigate it. I have bigger fish to fry than this. Micromanaging this would reduce my overall happiness by adding an additional thing to worry about.
Everyone's cost/benefit calculation is different, of course, and if yours indicates that you'd be better off being more diligent about this stuff, that's entirely fair as well.
( You don't need even to login to do that one, you can try it out yourself even if you're not in the UK to get a sense for the self-assessment requirements )
Functional online forms which actually take into account your answers and don't ask you to get out a calculator.
And keep in mind that the US tax system feels like it's set up to pretend you "owe" lots of tax, only for there to be a ton of reimbursements or allowances or refunds.
Which is then more forms to fill in (Form 2555 in my case ), each with their own cryptic instructions on where to write numbers and what to add to what:
> Subtract line 25 from line 24. Enter the result here and on line 27 on page 3.
Literally getting you to write it in twice because there's a page break?
Do you really think this is simple?
> 32 Multiply $49.10 by the number of days on line 31. If 365 is entered on line 31, enter $17,920 here
> 33 Subtract line 32 from line 30
> 34 Enter employer-provided amounts. See instructions
> 35 Divide line 34 by line 27. Enter the result as a decimal (rounded to at least three places), but don’t
enter more than “1.000”
> 36 Housing exclusion. Multiply line 33 by line 35. Enter the result but don’t enter more than the amount
on line 34. Also, complete Part VIII
That's a direct quote of 5 lines in a row from form 2555.
That's not a tax form that's a fucking arithmetic test.
Oh, and that "See Instructions" means a completely different booklet of guidance, in case anyone thought it was on the form itself.
I think they should get rid of all deductions at the individual levels. They just cause confusion and hide true cost of things.
For example, I went to buy Jeep. 4xe version was $8000 more. But its battery lasts only 2-3 miles and it would have taken forever to breakeven. But dealership kept insisting that I will get $6000 in tax rebate/deductions so the actual cost is only $2000 more.
They had marked up the car by how much government was going to give rebate on and there was no savings for a taxpayer. I tried to have them issue give me discount now and claim my car on their taxes but, of course, that was not going to work. I ended up buying a cheaper model.
EDIT: Just checked the range, it is actually 21 miles on battery, which would have been enough for my usage. At that time, salesperson informed me that it was 3 miles or so. At 21 miles per charge, I may have bought 4xe. Math still doesn't workout, since I work from home I probably fill the gas tank once every 2-3 months. About $200-300 per year for gas. So it would have taken 7-10 years to breakeven after rebates.
> They had marked up the car by how much government was going to give rebate on and there was no savings for a taxpayer
This is the thing that always gets me. After having seen too many examples of this I soured on these incentivized deductions. The benefit always seems to go to the middle man.
The dealer wasn’t really lying just unclear. The car is not designed to stay fully electric until the battery hits zero because the ICE engine is only 150hp. Instead it’s optimized to be a hybrid that’s reserving battery power for acceleration, which lets the engine stay in more efficient and lower RPM ranges for much longer. You can press a button every time you get in to drain the battery but that’s really not the intended use.
Anyway, the subsidy is really designed to setup the used car pipeline. In 20 years someone with significantly less money is probably going to be driving your car and they aren’t going to be thrilled with having ~14mph.
Maybe stating the obvious, but virtually everyone with one or more home loans should be itemizing their deductions to include that and their state sales or income tax. The standard deduction is very generous for non-homeowners (IMO), but it's easy to get a higher deduction just based on home loans and state tax, without even getting into all of the sketchy loopholes that some tax preparers will try to use.
That isn’t true anymore as of 2018 when the Trump administration made changes to the tax law. As a homeowner with a mortgage I used to itemize every year but now the standard deduction benefits me more.
Hard agree with this. Filling out your taxes by hand is actually very easy if all you have is the basics (which is most people). When I was doing my taxes for the first couple of years as an adult, I did it by hand and was pleasantly surprised how easy it was. The instructions are very clear and to the point.
I had a job on campus and a stipend, and that immediately tossed me into the deep end of “the tax code is actually ambiguous and the difference is three months rent”.
And the 1040EZ is even easier to fill out and probably works for the majority of taxpayers. But the bigger issue isn't filling out the form ... it is on the data side. If the IRS were to send you an invoice, independent of how complex the calculations are, the work to validate their data is much different than starting from scratch.
1040EZ doesn't exist any longer. I tend to agree with the broader point--even if it would probably nudge some taxpayers to overlook deductions they're entitled to.
The question with the trump era changes isn’t what percentage itemize in a given year.
The question to ask is what percentage should always itemize. and how long it takes for them to figure out if they should or not each year.
It is true that some people just won’t bother, but that’s just a hidden tax hike on the middle class. It doesn’t make sense for that group to bother to take the time to learn turbotax or hire an accountant in order to potentially save $1000.
Also, the Trump changes intentionally cause under-witholding, so now people have to fill out the “did I get fined for underpayment?” form, and the “do I need to file quarterly taxes?” form.
The change that intentionally broke the withholding formula was explicitly designed to make tax preparation more painful.
>The anti-tax activists think that if taxpaying is too easy, voters will be less likely to resist the federal government’s growth. Both want to make it as painful as possible for you to do your taxes yourself.
This sounds a lot like the logic the US government uses with regards to normalizing relations with Cuba. They think that by keeping up an embargo, that the Cuban people will rise up and overthrow their communist government. It hasn't worked for over 60 years, but surely any day now it will...
Sanctions haven't changed the regime in Cuba for over 60 years.
The big problem with sanctions is that they aren't applied completely. The US refuses trade with Cuba, but many other countries don't, so they aren't effective. The same is true with Russia: lots of countries (like China) still trade with them, and many more still buy their oil/gas.
For those who don't know, Grover Norquist is a highly influential, batshit crazy right-wing ideologue who believes the estate tax is morally equivalent to the holocaust. Almost every Republican lawmaker on the national level signs a pledge he has written, swearing they will not raise taxes.
Grover is the figurehead, but he's got backing from plenty of other billionaires and other large tax-is-bad action group.
also directly sprung from Bush Sr. saying "read my lips: no new taxes" and then immediately going the other way. that ruffled a few feathers and took the "tax bad" lobby into the Tea Party / Norquist insanity we've seen.
It's funny. I would not ever want to paint Norquist as an ultra-powerful shot-caller. I just assume those are the guys who donate the money and the guys decide who gets the donations. When you think about it in those terms, he's perhaps more of a cultural artifact.
But wow, what an artifact! There has not been, to my knowledge, an instance of a newly elected US Senator publicly saying "signing this absurd thing is beneath the dignity of my office and of course I'm going to try to keep taxes low, the voters of xxx elected me because they know I'm a dedicated conservative, but it is impossible to guarantee that it will not be necessary to levy a new tax of some kind, so I am not going to promise that." Or something along those lines.
He doesn't get to decide who gets the donations, but he does get to administer the Kool-Aid, and it's powerful stuff.
(edit: it occurred to me that given the rules involving political donations, and PACs, and so on, he might be administering all kinds of money and the public wouldn't necessarily know about it, so... yeah...)
JW, how do these countries handle non-employement or self-reported income (e.g. capital gains of real estate, equity, or even selling products online)?
In Sweden, certain things are reported to the government and others are not. Your task is to validate the prefilled tax forms and add missing income (above thresholds in place to allow for hobbyist level incomes) and deduct missing deductibles.
The typical process is to just approve it, but when you’re for example selling real estate you’ll have to append it with information about your capital gains minus deductible costs (broker’s fee, certain renovation costs, …).
The tax agency is famous for having excellent customer service and they operate under the principle “it should be easy to do right”. It hasn’t always been that way, but there was a mental shift similar to what direct-file advocates in the US seem to ask for in the 90s and that has worked out well.
Taxes in Sweden are generally effortless. Deductions, investments and benefits are often generous and easy to file. Unfortunately if you are more modest the story is a bit different.
It is great if you are established. You might have a big house, high maintenance costs, use cleaning services, invest a lot in the stock market and other things that comes with all that. Because not only is it easy but you get a lot of public benefits as well like health care, affordable student loans and mortgages, cost-free education and kindergarten, sick leave and affordable private additions to many of those. You can even use the ease of that to do things like start a company on the side.
For us that are more modest and don't have a lot of assets but mostly want work, get health care and do something else once in a while, it is still a good system. I once checked and approved my taxes in the middle of the night, from a bar, in China. But overall there isn't as much benefit. If I don't want to pay a higher tax rate than those who use all those deductions and want some flexibility in how I use my income (which I honestly rather wouldn't) I need to start a company. But then I would have to file much more complicated taxes and therefor get much less enjoyment from taxes being easy for personal income. Still by not doing so I am giving up tens of thousands of dollars a year.
So while I am in no way suggesting that the US system is better or even comparable, the Swedish tax system today have many of the same overall problems. And that is unfortunately more and more true of other systems as well.
By having a transparent semi-automatic system and making it easier to do "the right thing", Sweden (and neighbours) collect more taxes that pay for health care, education and other benefits that you have used.
> then I would have to file much more complicated taxes and therefor get much less enjoyment from taxes being easy for personal income. Still by not doing so I am giving up tens of thousands of dollars a year.
For tens of thousands of dollars per year, surely some tax/company admin service exists that could offload the vast majority of the tedium from you, leaving you with perhaps 10-20 hours of effort/personal attention per year. Even if they take half of the $20+K savings as their fee, that leaves you with $10+K to put in your pocket for a little over a day of total effort. That's $500-$1000 or more per hour of effort (all tax-free).
I am not really comparing tax system, or at least that isn't the intention. The Swedish tax system is easy as long as you stick to those accounted for benefits.
Say if you make a $100k a year and you pay social security for public pension among other things but public pension only gives you credit up to $50k a year. Now if you have a big house you can deduct renovations so your income is for tax purposes is, say, $75k.
If you don't have a big house and your income is a $100k you still get the same public pension but are taxed on the full amount. Now if you started a company and hired yourself through that you could lower your personal income and instead take out dividend so you are also taxed on $75k. But to do that you now have to file much more complicated taxes, with actual accounts and often accountants.
In reality it is even worse because many do the first thing but then also have a company. So they pay themselves $50k a year and then use deductions on that to lower the effective amount even more. So I am out here paying on a $100k so they can have a nice life. (The numbers are made up, salaries and individual benefits are usually less than that and the example might not be entirely accurate but the overall point stands).
None of this really relates to the US tax system, but it is a similar problem in that if I want the best financial situation (by a decent margin) I need to file complicated taxes and a lot of people do exactly that mainly for tax purposes. Swedish sentiments just haven't caught up yet.
Tax deduction for renovations is $5k per year ($7.5k next year). Or well, less now that 1 USD is 11 SEK instead of 10.
You make it sound like you can just start a company and hire yourself, and the biggest drawback would be more complicated taxes... No, the biggest drawback is that you're starting a business and taking a (much) larger risk than being employed. Hiring an accountant to help with the bookkeeping is a minor thing in comparison.
Me and my SO has had to change ours for many, many years because the banks can only report interest paid on our loan on one of us. So one has to reduce the other has to add this entry. Every year. Never had an audit nor heard anyone else who's had it.
A lot of stuff has to be reported at source these days, e.g. in Belgium where I live, Airbnb reports your income from hosting to the revenue service, your bank reports how much you paid on your mortgage (deductible), if you're unemployed then the benefits agency will communicate that, so will child care (deductible), and so on. And as the parent said, you can always add/edit amounts as necessary, which indeed will often be necessary for things like equity.
UK: no CGT on your home, only investment properties. https://www.gov.uk/tax-sell-home (in some ways this is a pretty big middle class giveaway, but it also hugely simplifies things)
That takes care of almost everything. My employer paid me a bonus in RSUs and doing so was also automatically accounted for in PAYE. However, this discussion has reminded me to sell the vested stock and move it to an ISA rather than leave it in a US ETrade account, to simplify future taxes.
My wife, a UK national resident in the UK, sells ebooks on Amazon as a side gig. She has to file notice to the _US_ tax authorities for exemption, because Amazon assume everyone is American for tax purposes.
Another great example of how the UK handles things differently in a way that shifts the filing burden off the taxpayer is charitable tax deductions.
In the US taxpayers track their charitable giving and use it to reduce their taxable income at filing time.
In the UK when you donate to a charity you attest to that charity that you are a UK taxpayer and that the donation is therefore gift aid eligible, and the charity just goes to the tax office and collects an extra 25% on top of the donation.
So in the US, say, you earn $150, pay $50 in tax withholding, then donate $100 to a charity, then claim the donation to the IRS to say you shouldn’t be taxed on $100 of your earnings, so you should only have paid $30 in taxes, and you claim back $20. You have $20, charity has $100, taxman has $30.
In the UK you earn £150, pay £50 in PAYE, then give £80 to a charity, keeping £20 and telling the charity they can giftaid it. Charity goes to the taxman and asks for another £20. End result, you have £20, charity has £100, taxman has £30.
Essentially the same outcome - charity donations are tax advantaged - but the paperwork for taxpayers is much simpler.
In the US, that assumes they exceed the standard deduction--which absent a large mortgage deduction or quite high charitable giving most people won't for routine modest donations.
In Mexico we have a quasi-blockchain quasi-smart_contract that gets signed and sent to the taxman every time an invoice is created.
This “contracts” are in xml format, require a private key to be signed, and are incredibly rich in catalogs and features.
They are massive: just last year, over 10^10 generated documents were reported.
Sure there is still a lot of informality, but in a matter of years not only will tax returns be automatically calculated for you to pay (this is already happening), but also p&l’s and balance sheets of small and big companies.
of you do that seriously you'd incorporate the llc equivalent, which has its own reporting.
in Denmark, if you are a hobbyist (less than 50.000 DKK) then you report the aggregate income (b indkomst) and it is being added to your regular income.
I think it is deliberately made difficult as a backdoor way to raise more money through penalties and interest fees. Additionally, since the odds are so high that the average person making above $200K has made an error, it can be used as blackmail.
On a global scale, complex taxes are actually not uncommon and the US fares well. I'd like to see a comparison of government corruption with tax complexity. For example, it seems that most South American countries are considered to have very complex taxes.
> I think it is deliberately made difficult as a backdoor way to raise more money through penalties and interest fees.
No, you have it backwards. Politicians don't want to make it difficult, they want a simple, stable revenue stream. But in the attempt to do so, commercial interests carve out convoluted exceptions for themselves to preserve revenue and make it more difficult for incumbents to challenge them. The lobby that ensues skews political incentives, and that's why it gets convoluted.
I don't buy this. The IRS collected tens of billions in just one year in civil penalties. https://www.irs.gov/statistics/collections-activities-penalt.... Politicians asked for more money for the IRS to increase revenue. I don't buy that this is because all that revenue is from criminal cases especially if lobbying can easily change the tax code.
There is nobody in the developed world as opposed to the government raising revenue as Americans are. That part is bipartisan, which is why Biden hasn’t meaningfully raised taxes. But Republicans go a step further and want you to suffer once a year so you don’t get complacent about the tax rates.
In the x years I lived in the United States my income taxes in other countries have been almost unbelievably easy. They just didn't exist, as long as I didn't live there.
As a citizen of a country where tax is handled entirely by the government, schemes where for-profit corporations are part of the tax collection infrastructure seems absurd. As absurd as for-profit courts or for-profit election polling stations.
The article mentions that the tax software maker opposes the government doing this, but doesn't mention public opinion. What does the average American think about this?
Part of the problem is that both parties have ended up making our tax code so convoluted as sops to their own special interest groups. Group A needs a tax break for this! Group B for that! And so if you have a bog-standard boring return, fine, but if your financial situation ends up in certain buckets such as renting out property, getting RSUs, etc., then sometimes it's cheaper to hire an accountant than leave money on the table not understanding your deductions.
And then people in less-complicated situations get intimidated and think they need tax-prep software. Or they're lazy like me and use TurboTax so they can click through everything in an hour and be done with it.
i procrastinated on getting my tax paperwork together this year until an unbelievably late date. so i was kind of surprised to get a call from my tax guy on oct 16 letting me know my return was ready —they had just requested my transcripts from the irs, which had all my income from 2022 listed.
so it would seem that a) for at least the nominal taxpayer, it’s entirely possible that the government has your information already; and b) unless i get back into consulting or otherwise complicate my income, my tax guy just set himself up to request those transcripts every year!
Have you ever done your taxes? For individuals, it’s easier if you have a high income because many of the deductions and credits phase out and are capped by AGI. Dependent care FSA versus dependent care credits, student loan interest deductions, etc. Most of the questions the software asks you aren’t “Warren buffet” deductions.
Once you get beyond W2 income, things get complex in a hurry. I don't think I have especially complicated income sources and deductions and I still end up with a half-inch sheaf of forms from my accountant every year. It's not actually a lot of work for me personally. I just need to make sure I've kept track of all the paperwork drifting in or downloaded and I have to write a fairly substantial check to my accountant.
Depends on your definition of wealthy I guess. There are many tax exemptions that also affect less affluent people. There are simplified filing schemes, but one would leave a lot of money on the table using those.
> What does the average American think about this?
Like most problems, the average American has (for political purposes) ~zero mental engagement with this. Vs. those for-profit corporations (and a variety of other interest groups) are intensely engaged. And it's all-too-frequently reported that any politician who wants to be (re-)elected to America's Congress needs to be intensely engaged with wooing interest group support and campaign fundraising.
Here here!
And, that is honestly the best. It’s why we have a republic and not a “pure democracy”. Nobody likes taxes, but other than having to interface with the system once a year… who cares? I can pay H&R Block $X or pay $Y more in taxes. Whoopie!
Summed across the whole economy, the total $X being paid to America's "Tax-Industrial Complex" is vastly more than the total $Y that it'd cost to have an efficient government-run system.
“Tax-Industrial Conplex”?! If you had something to say, it’s now lost behind your rhetoric. "Eisenhower's farewell address to the nation" does not commute to H&R Block. This is a foolish misquote that absolutely reeks of an appeal to (false) authority.
I also disagree that a new government tax program would be more efficient than the established market-rate tax preparation businesses. Let alone vastly more efficient.
Magical thinking doesn’t help anyone solve anything.
I expect most of the people who spend substantial amounts of time/money on doing taxes in the US would spend substantial time/money on taxes in most other countries too--unless it's a country where a lot of people basically evade paying taxes at all.
Depending on how straight forward the IRS makes it, considering they already know what most people owe and yet still force us to jump through hoops, then I’d be willing to give it a go instead of paying a company to help me with my taxes or using one of the various “free” websites that usually just try to sell you something else.
> What does the average American think about this?
That all depends on the government's execution. If they can deliver a system that is more convenient to use, cheaper (no, government services are not "free") and provides better results, then I'm all for it.
It’s very much a “who cares?” Issue. It’d be cool… but: taxes are still super easy to file for 90% of people. You’ve literally always been able to file your taxes by paper and not have to pay anyone anything to do so.
It does not have to be a digital system and the government should not chase technical solutions unless it genuinely benefits its operation and legal requirement.
If people want easy taxes then they can hire someone. That seems to be the market solution to most problems.
> Arizona, California, Massachusetts and New York have decided to work with the IRS to integrate their state taxes into the Direct File pilot for filing season 2024. Taxpayers in nine other states without an income tax – Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming -- may also be eligible to participate in the pilot. Washington has also chosen to join the integration effort for the state's application of the Working Families Tax Credit. All states were invited to join the pilot, but not all states were in a position to join the pilot at this time.
Since the article didn't bother to list the states, as far as I could see...
We have in France pre-filled taxes, you go to the tax site, click next a few times and you are done. Takes 30 seconds for 90% of the population. Usually people do not even check what they click if they have a standard job.
Is the system in the US much more complicated to require software purchases?
I get it that it is not prefilled, but is there a lot to actually input in the system?
You're expected to enter all of your income, sort out what portion of your income is taxable, determine the amount you can deduct from your taxable income, figure out what tax credits you're entitled to, calculate how much tax you already paid and what you still owe or should be refunded, and decide how you want to pay or be reimbursed.
The good news is, after all that, if you make a mistake the IRS will tell you what you actually owe and send you either a bill or a check for the difference.
> Is the system in the US much more complicated to require software purchases?
It's intensely more complicated.
My 2022 Federal tax filing was over 50 pages. I gave up trying to do it myself with TurboTax about 10 years ago and that was one of the best decisions I have ever made. I can sleep well at night knowing that as long as I provided the necessary information to my accountant, all the right forms will have all the right stuff on them.
IMO, nobody but the most trivial W-2 only taxpayer should be doing it themselves.
The state filing in my state is much simpler because it mostly piggybacks off the information in the Federal return and doesn't require dozens and dozens of additional forms.
I'm pretty sure your tax forms in France would also be 50 pages, and you would have to submit a detailed correction of the government forms if you wanted to actually minimize your tax burden. That has more to do with the complexity of your income and assets than anything else. My tax forms in 2021 were about 300 pages if you combine everything (including 1099s, W-2s, and other reporting forms), but that has to do entirely with stock trades, real estate, and small business profits, all of which would be a pain in any tax system. The simplest taxes in the US are 2 pages of forms (the 1040) plus a few W-2s.
The average American can easily fill out their tax papers by hand. TurboTax just sells the dream of finding "hidden" deductions and credits, which basically don't apply to 99% of people.
And I'm guessing you taxes would be fairly complicated in many/most countries in the world and wouldn't be handled by clicking a "Yep, looks about right" button.
I'm in the same boat and I don't even think my situation is especially complex. I can also ask my accountant questions in advance for tax planning purposes.
On the other hand, a lot of people do just have a W2, maybe a 1099, and take the standard deduction.
> Mind you - the gov already has copies of ALL the forms. They just want you to f it up.
Not completely accurate - you’re required to pay tax on side jobs under $600 for instance, but neither you nor the IRS get a 1099 tax form for it. Reporting it is on the honor system. Cash tips are supposed to be taxed but rely on self reporting since the IRS has no idea who handed you money, etc.
There are also many deductions and credits that the IRS does not know about unless you self report and claim them.
You don’t expect it, but it is. And all I am saying is that I’m not surprised it isn't already “part of the process.” Just because it’s not part of our filing process doesn’t mean the data and its relationships don’t exist.
Heck, I’m the first to say 99% of this should not exist in the first place. (That means I think the nation state concept should not exist.. there should be none.)
But be honest with yourself: you know society tacitly accepts interfaces between dbs for the corporate purpose of profit… (advertising, etc)
Of course. The upthread comment about EVs was presumably in regards to the federal EV tax credit and how to handle the data flow needed to support it in an automated return generation process.
Ah OK. In our case the various sources of income have to provide the information to the tax authority, and this is summarized in the prefilled web form (that you approve by clicking submit).
Now, it is your responsibility to make sure that all of the sources are indeed there but for normal people it is the salary only. It happened to me once that one source was missing and I was not happy at all (but said source provided me pronto with what to put where in the form).
Overall I would say that our tax system is complicated (as all trax systems) but made really simple for average people.
Also we do not have any companies such as yours that would provide software to make your taxes. If you want some help you can either contact a specialized finance person (this usually costs 200€ and is useful only if your case is really complicated) or you have free help areas at town halls (mairies). Or clear directions from the providers.
But as I said, it is for a select population, not for the everyday Joe who just clicks three times. There was even national ads on the radio about that.
Starting from this year I think that in France if you do not react then it is assumed that you completed your taxes as described in the tax sites.
The rationale is that for the vast, vast, vast majority of people there is nothing to do so it does not make much sense to bother them at all.
A lot of things changed when we finally moved to have taxes automatically deduced form the salary (before that you had to pay separately three times a year, and later you could make it a monthly payment). This means in practical terms zero contact wth your taxes when you are in the general situation.
It's not much more complicated for 90% of the population. You just need to wait for forms from your insurance, your employer, etc and then you copy some numbers from a form to another.
If you want to optimize to death yeah you start dealing with deductions and all.
I think people just use a software cause it gives them peace of mind and it helps them understand all the "life events" they could use to reduce their taxes.
Re: the cannabis situation - the closest European analogy would be Amsterdam or Christiania. Cannabis sales are not legal in those countries, but some sales are tolerated in specific areas.
California isnt too much different - it is illegal in the United States to sell cannabis, but the federal government mostly tolerates it in states that permit sales.
Yeah christiania is great and all but incidentally I've been going to christiania for almost as long as we've been able to file our taxes online with a button. (20 years)
Even in Europe, countries have several levels of administration/government. Cities, regions, districts, whatever. The national government is not all powerful.
Non-USian here. How does federal income tax work for people with a normal, regular job? If someone just works full time in a shop or on a factory line, do they get yearly tax demand that they have to check and/or calculate themself?
It can be pretty easy. When I started my professional life in the US, taxes were relatively simple because I basically had two sources of income (job and interest investments). You enter 2 forms, ignore a lot of prompts in the tax software (do you do X? Do you do Y?) and go for it. You can even file your taxes for free - in theory - if you have a simple life like that. A lot of taxpayers do.
The problem that makes things a lot more complicated is that the US has many little mechanisms for reducing your tax liability that are very tempting to use (and oftentimes inevitable): 401k, HSAs, mortgage interest deduction, 529 accounts, long term capital gains, capital loss offsets etc. HN readers tend to be more educated than average and have a higher income than average. Also, a lot of math-inclined, optimizer types here who will absolutely want to take advantage of these features in the tax code.
When you start adding every little way to pay less taxes, or start doing more interesting things in your life such as setting up a small business or buying property, tax preparation can become a nightmare.
> taxes were relatively simple because I basically had two sources of income (job and interest investments). You enter 2 forms, ignore a lot of prompts in the tax software (do you do X? Do you do Y?) and go for it. You can even file your taxes for free - in theory - if you have a simple life like that. A lot of taxpayers do.
That's way too complicated. In the UK, for the vast vast majority of people, there are no forms. if you meet the criteria in this quiz [0] (self employed top 5% of earners, or other large incomes), you get a pre-filled-in form that you enter extra numbers into. For the vast vast majority of people, you never see this form, and most people who fill in this form just click through it.
You can call it relatively complicated, but it was not complicated in the absolute sense. Perhaps tedious and busy work-ey. The process was basically typing 10-15 numbers that I read from 2 forms sent to me by mail rather than thinking/reasoning.
Don't get me wrong, it would be a lot better to not do it like you describe, but as far as bureaucracy is concerned, I'll take this over all the other bureaucracy you have to deal with in Europe. It's the one time in the year that I feel I have to actively deal with the government in the US, at least in the state I live.
And the government is unaware of those or? Where I live the banks reports stuff such as mortage interest payment, capital gains etc, it's time for taxes it's all filled out already and I click OK or text the tax authority to confirm.
It could absolutely be done as you describe for most people. Most will need around 1-2 hours of tedious work per year versus 1-2 minutes as it should be.
All I'm saying is that the current system isn't that difficult for most scenarios, simply annoying busy work and form filling that should be done automatically by the government. When people talk about the US system, it sounds like most people would need a tax professional for doing taxes when that's not really the case.
When you get a new job, you fill out some forms that tells the government how much money to withhold from your paycheck based on your expected earnings, deductions, etc.
Later, at the end of the year, you file your return of what you actually made, what your actual deductions were, etc. And then the government will either pay you if you paid too much or they will ask you to pay if you did not pay enough.
Thanks. Presumably such a person wouldn't need tax-return software?
The system here in the UK is similar, except that "regular workers" don't file a tax return. Work-related deductions/additions (e.g. private health plans) are reported by the employer and are automatically accounted for. Non-work stuff like capital gains on personal property sales are mostly dealt with as part of the transaction.
The user you're replying to simplified the process some. There is no government website that will tell you exactly what you owe. You always are doing the math yourself and then hoping that you did the math correctly. Even for a refund, it's up to you to tell the government that you overpaid.
The reason you might have heard a lot of fuss around hiring more IRS agents, is that the only way to validate these numbers if to be audited (broadly speaking). There might be some automated checks for very obvious things but much of the process is self-reported.
The software is largely there to help people with the math and accounting for all of the deductions that the average person may be eligible for (mortgage interest being the largest and most common).
Sorry I don't think I clarified enough. To fill out your expected taxes you have to do calculations to determine the proper deductions. So very often you do end up owing because your original paperwork wasn't quite right.
The software is not necessarily "required" you could fill out all of these forms by hand and the IRS also provides online software to aide in filling some of the forms. Many people do do this if they have very simple tax situations and they don't mind dedicating some time to it.
However, due to the complexity of the filing it often is just easier to pay turbotax, HR block, etc to ask some questions and auto-populate the forms for you.
There is also weirdly specific forms you sometimes need for certain deductions/situations (foreign income, foreign bank accounts, investments, crypto, living on a college campus, school supply tax reductions, etc) and its not always obvious when you need to fill these forms out, you could read the IRS website but that's excruciating. So often times these tax softwares also ask questions to help you determine what forms are necessary to have a complete return or help you maximize your deductions by finding the ones you qualify for.
> Presumably such a person wouldn't need tax-return software?
Wrong. I did my first tax return by manually filling out the PDF form. Even though I only had a single income and was filing the EZ form, it took at least an hour or two. Then there were state taxes.
> Presumably such a person wouldn't need tax-return software?
Correct. Part of the tax prep scam is convincing people that they will get the death penalty if they screw up their taxes, so they need an accountant or all these fancy software gizmos to do it right. If you can use a calculator, and aren't a SBO or have a massively complicated investment scheme, then you can do your own taxes in an hour or two. The IRS will send you a polite letter letting you know if you screwed up.
It's a "push" system rather than "pull" that you're thinking of -- the government (in theory) has no idea what someone earned, although they do know how much tax they've already paid during the year, they pretend that they don't.
So the employee's task is to present a record to the government (known as "Filing Taxes") that says: I earned this much, and I already paid this much tax, so you owe me this much back (while it's possible to have paid too little tax, most people pay too much for fear of ending up in trouble -- you're required to pay some high proportion of taxes owed for the year, during the year -- like pay-as-you-earn).
Employers send each employee a piece of paper at the end of the year showing how much they earned and how much tax was already sent to the government.
For the simpler case, generating the tax filing (form 1099EZ) is pretty much a case of copying numbers from the W-2 onto the 1099. Most people would also need to add some numbers that come from other places (e.g. mortgage interest paid, tax credit for buying an EV) but those are also available as pieces of paper sent to you by lenders etc. Since math has to be done to
determine the owed tax and subtract the already paid tax, a paper form is not the right way to do it. A spreadsheet is ok for the math, then copy the numbers onto the paper form. But that's some work. Hence "Tax prep software" which is basically a combination of the spreadsheet and a fillable PDF.
Since the government is slow, they never developed that spreadsheet+pdf web site early on, allowing commercial entities (Intuit, mostly) to jump in as an intermediary.
Although the US tax system can be complex, as you suspect for most people it really isn't. The issue here is more about the government pretending they don't have the information necessary to generate a person's tax filing for them. This puts the burden on the user, and so in turn they get help with that from companies like Intuit. Eventually it becomes obvious this situation is ridiculous, but putting the genie back in the bottle is not so easy.
It has gotten simpler in recent years. For people who just have regular jobs and families, you probably just have a wages statement from your employer (w-2). Most taxes are taken out already at payroll time. You add up all your w-2's and report on how many children you have and based on that you can calculate your taxes.
The forms used to calculate this are quite complicated because they are designed to be very versatile. For instance, in years gone by you could reduce your taxable income by noting stuff like healthcare expenses, childcare expenses, home mortgage interest etc. This is all now covered (for most people) by a standard income exemption that everyone gets.
The 1040-EZ actually got dropped. I don't actually know the logic but I assume it was something along the lines of just use the 1040 and just fill out the relevant parts.
Does 'direct file' mean you won't have to post (by registered mail) your physical tax form to the IRS? That would be the biggest win surely (although huge loss for USPS)
You haven't had to do this for years & years. The IRS provides an online form for all the paperwork. Type all your stuff in and hit Submit, for free. AFAIK it should work for pretty much all tax situations, all the forms are in there. https://www.irs.gov/e-file-providers/free-file-fillable-form...
See the caveats and "not implemented" notes all over that solution. Many of them. Including basically mandatory ones (I don't know that their 1116 form is usable by anyone.) But yes, that one is progress. Although maybe not "years and years".
that’s not a thing for most people —registered mail is not necessary, even when physical forms ARE submitted, and the “Direct” part means directly with the IRS (no middleman). But the Direct File program is electronic so the answer to your question is yes.
Just curious, why are you still sending physical tax forms? Have you been filing 1040NR? Those were recently digitalized, while the standard 1040 has been digital since a while.
The issue is not the mere form 1040. Many taxpayers have to provide several to many other forms.
But besides that, the reason for printing and mailing is that the IRS seems to have focused on either tax prep software company interfaces to the IRS (the tax prep software submits), or fill out - esign - encrypt/hash/protect - submit in their own web-based workflows. In the cases they provide for, there is essentially no provision for adjusting the form to your needs or attaching statements (notes in your own format). And attached statements are very often required.
In particular the IRS refuses to let us upload a PDF or other images of filled out forms. Or email them. Such a submission could then take the exact same path as the forms they receive by mail - doesn't seem too hard - but no, we can't do that.
Some departments at IRS/Treasury insist on a fax interface. As the main alternative to mailing paper. At least in this case I can use a (not exactly safe) PDF to fax gateway to get on with my life.
According to the IRS, these are the states joining the pilot:
States with state income tax: Arizona, California, Massachusetts, and New York
States without state income tax: Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming
I think I will pass this trial for now. I knew a high-level programmer who worked at the IRS and he was very good. But the bureaucracy was overwhelming.
Given enough time then sure, but now, no thank you.
But if the IRS wants to use my returns as a test case, I say go for it.
Low income individuals spend a far greater share of their income on goods that would be subject to VAT than high-income individuals. Eliminating income tax would shift the burden of paying for government even more to the people who can least afford it.
Ideally, taxation should be a mechanism that redistributes wealth within society to be more equitable which ultimately benefits everyone, even the wealthy, by increasing overall economic growth. Income tax is a very good mechanism to achieve that goal (though definitely not perfect) and I agree with Thomas Piketty that we should add a small wealth tax on the very wealthiest individuals.
The current system costs billions of dollars in taxpayer money, it’s just that today those dollars flow to Intuit. The IRS one should end up costing less overall, even at govt contracting rates.