Precisely why I built https://freetofile.com (it’s a simple static site with React for internationalization that automatically renders in Spanish, Chinese, Haitian Creole, or English depending on browser settings). It’s shocking and depressing how many low income people don’t know they don’t need to spend $100-200 to file their taxes.
I want to blanket my area (well the whole country really but baby steps…) in signs with the URL during tax season. I really do loathe the entire industry at this point due to their gross practices around free filing. Some offer “free” online filing but deceptively upsell until they squeeze some money out of the customer. So I want to make any little push back I can against these companies.
One thing you will be up against is this mind set that TurboTax is saving you money. One way to dismantle this cognitive dissonance is to compliment your user with the option of choice. Even if the choice is obvious positioning yourself this way empowers your target user to make the right one:
Freefile helps ensure you keep your entire refund unlike TurboTax and other filing services which takes money from your refund. This tax season the choice is yours.
My mom spends easily that much with her tax preparer who is an independent person who tries to dissuade usage of software like TurboTax. My sister spends about $100 to file, and they have simple W-2 stuff. I know several folks at my church who spend $50-$75 on TurboTax or something similar every year.
I just spent like $200 to file mine with TurboTax only because I have a very simple 1099-K/Schedule C since my wife sells things on Etsy. I know Schedule C can range from my simple setup to absolutely ridiculous, so I don't totally grudge it. But at the same time, there are a lot of small business owners where that's a big chunk of change for them.
At Costco TurboTax with Business (or something like that) costs around $79.99 + tax. It has Schedule C [0]. Next time you want to buy TurboTax maybe buy it from Costco - $200 for your usage scenario looks like over-payment.
[0] It also has other things such as RSUs, stock sales, real estate, cash distributions from businesses, etc... For personal taxes I do not see why anyone would pay a tax accountant as opposed to using TurboTax.
Haven't filed mine yet for 2024, I did a bunch of side gig work eg. driving door dash, uber eats, donating plasma... been put off by that (having to track every mile). Also I usually end up owing too.
I think the worst thing I had to do was write a FIFO calculator to go through my thousands of tiny crypto transactions back in early 2020s thankfully I don't screw around with that anymore (especially when I got rekt and lost $4K)
Bravo, this is, quite possibly, the most morally chaotic (in the alignment chart context, [0]) comment I've seen on hacker news, much less in 3 words.
Off the top of my head, this can be a topic of discussion in Nash Equilibria/Tragedy of the Commons/Game Theory just from an economic lens.
I don't have any formal education in these fields, but I'm sure there are fields in general philosophy ("Given presumably others too have lied and done it, are genes of anxious liars actually better than that of an anxious honest person? But if they go ahead, don't they become a liar? Maybe their conscience makes them still a better person?") and medicine too ("Is honesty even inheritable? How significantly inheritable is anxiety? Does it even matter? - Because for example apparently almost 30% of all humans have a depressive episode. Maybe most humans already have the genes but it's just not expressed?)
I'm rambling a bit, but I just wanted to show how much 3 words could be expanded if someone wanted to analyse it thoroughly. Really love the comment.
(I don't personally condone lying but I do appreciate a good philosophical dilemma and discussion.)
As someone whose employer uses a broker that doesn't do cost basis correctly for RSUs, I was very surprised TurboTax was able to import the supplement and adjust it correctly for me.
Even without RSUs, I usually have hundreds of transactions across multiple brokers.
> whose employer uses a broker that doesn't do cost basis correctly for RSUs, I was very surprised TurboTax was able to import the supplement and adjust it correctly for me.
Approximately zero brokers do this, because RSU are still noncovered shares.
> Even without RSUs, I usually have hundreds of transactions across multiple brokers.
As a corollary, "hundreds of transactions" of covered shares collapsed into one summary line.
RSU is a pain though to enter. Technically you can enter a summary line and send in a 1099 to the IRS (last year was the first year that could be done electronically, so, fingers crossed it actually works correctly).
Reported to you, of reported to the IRS? As in if you just push through without a 8949 does the IRS come after you with a CP-2000 a few years later with a letter assuming 0 cost basis? Or does the IRS already have correct numbers?
I do consulting on the side and trade crypto and I pay my accountant around $1000 a year for taxes and payroll. The way I have it structured is that it just qualifies as a business expense, so I can get my wife and I'd personal taxes done as part of the deal.
I suspect many others on HN have something similar setup.
Go look at the financial results of H&R Block and tell me your guess of how many people are spending a ton of money getting taxes done. (Intuit too, but we might not know how much is TT vs QuickBooks).
And I suspect the #1 most common tax form H&R does for retail clients is the 1040EZ, the one that should take anyone with a $2 calculator a total of 10 minutes to get through. For the privilege of having H&R do it for you, you get to pay about $75 and they'll generously loan you your own few thousand dollar (due to EITC) refund on the spot, at an effective APR of like 7,000%
There's certain cases, like deducting student loan interest paid, which these companies gate behind paid versions. So yes if you have extremely simple taxes you can usually file for free but even some really basic deductions are gated.
Even freetaxusa charges for state taxes IIRC. Some of the cheaper ones surprise you with fees as soon as you add capital gains, crypto, or anything more interesting than W2 income.
I think the state fee for freetaxusa is something like $30 IIRC. It was small enough where I didn't even bother looking into whether it goes to the state or the software vendor. That's the cost of a casual lunch for one at 2025 prices.
I think it depends on the state. Virginia for instance used to have a free government run tax filing system, but the tax prep industry got a rep elected who killed it off and punished the state for its insolence with one of the highest e-file rates in the country.
Sell some stuff on Etsy and get payouts on social media. As soon as you start adding in business expenses, it inflates pretty quickly.
I've often taken on a side project or two a year for software dev/consulting and it usually winds up being $200-350 to have my taxes done. If I only have W2 income, I'll do the electronic version of TurboTax though. I also do 0 deductions and have extra out of each check taken out just in case, I don't set aside or do quarterly payments and usually get a decent return back.
I pay my accountant $300 a year to do my taxes. It was really a shock to find out that TurboTax was completely ignorant of my tax situation and was costing me thousands of dollars a year.
Taxes are crazy anyhow. The government won't tell me how much I owe, but if I'm incompetent enough at figuring out the number, suddenly they both have a clear idea of what I owe and also I'm now in trouble. Why doesn't the government just tell me what I owe, and if I think they've calculated incorrectly, only then do I do my own filing or hire a CPA or whatever else?
> Why doesn't the government just tell me what I owe, and if I think they've calculated incorrectly, only then do I do my own filing or hire a CPA or whatever else?
How do other countries find out income and deductions for small businesses? For example: the cost of replacing the blade on a lawn mower. For a small business doing gardening that is a cost that needs to be deducted from their income. How would the government know to deduct this cost from the revenue and calculate out the tax?
Businesses typically do need to file. Individuals may have to report some of the deductables they want to claim.
E.g. in Finland employers deduct taxes directly from salaries. Also some capital gains taxes are directly deducted by banks etc, or at least the income is reported to the tax office. Yearly the tax office sends a prefilled report based on these. If you are fine with it, you don't have to do anything. If you want to add e.g. deductions, you add them on the tax office's website and it calculates the new report.
I've been getting taxable incomes for 25 years or so and I have never had to do any tax reporting.
Nit - as far as I know in US this standard deduction applies only to overall household income. It does not apply to Schedule C (aka small business tax return form). For Schedule C you really have to itemize what you spend your money on and keep receipts for some time in case of an audit.
This comment conflates several things and risks confusing others.
Schedule C (self-employment), which is a schedule you attach to your personal income tax return vs a business tax return (different depending on the type of business and what they're reporting) filed by the business.
Itemizing deductions (Schedule A) vs reporting/deducting expenses as part of a Schedule C as required by the IRS.
That's not a problem. You won't get into trouble for not declaring a deduction (in my jurisdiction, anyway).
They don't know your business income either of course and you do have to declare that, but most people have only income as an employee and they do know that figure, so most people don't need to "file" anything here. It's all automatic.
When you're buying an item you declare you need an invoice on it and punch in your tax id.
Later, when you're filling your monthly taxes, you include that invoice in an XML file (plenty of generators available along with the free government-issued one), sign it with your digital ID and send that to the Ministry of Finance servers (MF servers for short). The MF servers then compare your entry to what all the people that sold you stuff entered.
This exists largely to prevent VAT manipulation, but at the same time gives all involved parties a clear, regular indicator that everything is fine in terms of taxes.
I'm a contractor and do this little dance every month using an accounting SaaS.
Yes, and that corporations have the same rights as people, but can’t face the same consequences.
The fines for wrongdoing are so tiny the incentives are to always do bad stuff and just pay the fines - that’s how to maximize profit and there’s no downside.
Except when it comes time to speak in private with other people, speak for other people so they may obtain privacy, speak for sex work, speak for drugs, speak at banks, speak to people in other countries, refuse to speak to government, etc. Then it's very serious Money which has Very Important Regulations. Regulations which always seem to burden regular individuals while facilitating business as usual for those with power who can grease the system.
FWIW I think the "money is speech" is actually a bit of a distraction. What we really need is wholesale reform to corporate/LLC law. Corpos are not mere groups of people exercising their individual rights, but government-created liability shields. Thus it makes perfect sense to regulate them to prevent obvious mechanisms of harm that leave others holding the bag. The vaunted "man in the arena" needing minimal regulation can actually get into that arena with a sole proprietorship or general partnership. (which is exactly where most small businesses actually are, regardless of any LLC filings)
This is a meme, but it’s not true. The fact is taxes are
1. Subjective
2. Based on your real world activity outside your W2.
So the IRS has correlative algorithms to signal an audit if something looks strange. But besides that, you are evaluating your real world activity and classifying it according to the forms they have.
This is why accountants and lawyers are useful in tax. They can help you interpret the tax code and argue to the IRS your interpretation,
This is true in the general case, but it does miss the fact that a huge percentage of people could have their taxes done automatically by data that the IRS has
- how much of the year your wife are kids are living with you?
- whether you took college courses?
- how much you put into your IRA?
- which purchases count as medical expenses?
- the cost basis of the stock you sold?
Agree with all of them except the kids. That was the big reason I said "huge percentage" instead of something like "overwhelming majority", because I have a sneaking suspicion the IRS doesn't know anything about your kids at all. So I'm guessing child tax credit isn't automatically calculable right now.
Let's assume you're right that they don't have a simple table that shows parentage of every SSN, sounds plausible that they wouldn't at least to start, but on the other hand, (for people who don't add or remove spouses or kids from their household) it's arguably VERY common for kids to persist with the same parent(s) from one year to the next.
I don't think anyone is saying "All taxes should be automatically calculated to the final numbers" -- just that for instance, when I filed last year with a spouse and 2 kids, a default calculation could be done this year that assumes an unchanged household.
And anyway, just as TurboTax does, the IRS could maintain a simple fact database for you for you to sign in and indicate what SSNs are part of your household, with the bonus that it would detect a duplicate claim for the same kid up front and show you that someone else (e.g. your ex) is claiming them and that you should get them to remove them to avoid both your returns being incorrect. The complexity for a taxpayer of signing in to IRS to manage household members, address, etc. with IRS is an order of magnitude less than that of tax prep they have to do today.
Even in this case the IRS could pre-fill everything it knows and let you spend 5 minutes adding any details they missed. For the majority of people it would be "open up mytaxreturn.irs.gov, verify that everything looks correct, hit yes and be done".
The IRS knows enough before tax time to auto-file about 90% of American's returns. Because 90% of people only have a W2, maybe a mortgage (which they know), and take the standard deduction.
The could send 100% of people a bill that you either pay or file tax forms to replace.
With the way these conversations often go back and forth, I sometimes wonder how many people have actually done their own taxes by hand with the official forms, vs have only ever used some program or service.
If your taxes are simple enough to fall under the 1040-ez as most Americans are, the IRS does know your exact tax responsibility. I have personally received a letter from the IRS informing me that I'd filed wrong, and gave me the actual correct values. Many Americans have.
Just because you personally disagree with something doesn't mean that it's a ridiculous lie.
There used to be, they got rid of it around a decade ago. I think I remember the reasoning was the 1040 was simplified at the same time.
Edit: Yep, 2017 was the last year the 1040ez was around, and the regular 1040 went from 74 lines that year to 18 the following year. The 1040ez for 2017 was 12 lines.
Income tax was supposed to end after we recovered from the Civil War anyhow, so it's, by any other definition applied to any corp or business, unjust theft (like autobilling someone after they paid off their loan).
So of course it doesn't work. Also plausible deniability, if you overpay, rarely will the gov give you back what you give them, and if they do, it's months afterwards.
The case you outlined is for employed people - in this case the income and deductions are very clear and relatively easy for government to find out and calculate the tax.
How would the government be able to know the income and deductions for small businesses? And in the USA at least lots of people have small businesses (cleaning businesses, landscaping, sub-contracting in construction industry, mowing lawns, consulting gigs, Uber/Lyft drivers, etc...)
They wouldn't, those people would have to file like usual. But the vast majority of filers (something like 90%) only have forms that the government already has, and takes a standard deduction.
> How would the government be able to know the income and deductions for small businesses
Determine the amount of average deductions for small businesses, benchmark against however much money you want to extract from small businesses, then give all small businesses a blanket standard deduction.
The Canadian government recently announced automated tax filing. I assume that you still file your exemptions because there is no way (I hope) they know what charities I am donating to!
The tax filing industry is against it, essentially. Various attempts by the IRS to move in this direction have been stopped.
There used to be a libertarian wing that thought paying taxes should be a little painful so people wouldn't vote for more taxes, but I've not heard anyone say that since the bush era.
Pretty wild to me that we're at the point where even Penn Gillette recognizes that modern American Libertarianism is ultimately just about rich white men who want to do whatever they want with no consequences
Norquist has always been a partisan hack. To his credit he was against the Iraq war when that was unpopular with Republicans, but he’s acquitted himself especially poorly in the era of Trump.
I know people who mess it up every year and the government just sends the forms back corrected. In fact they started treating the government like a tax prep service. Do people actually get in trouble for this?
Unless they willingly and provingly try to grift IRS on a continuous basis, no, people don't get in trouble for this.
If you mess something up or underpay on your taxes, and if (or when) IRS detects it, they will send you a letter explaining their concerns and provide you with remediation options (as well as an opportunity to dispute, of course). The remediation options provided by IRS typically include both "pay it now and we will go away as if it never happened" and "talk to us, and we can work out a payment plan with you (in case you aren't able to cover at the moment)".
So no, IRS isn't some boogeyman that is gonna get you in trouble over a mistake. If they catch a mistake, they will work with you to remediate it, and their terms are typically extremely reasonable, and have zero negative consequences for utilizing them (unless you are, beyond any reasonable doubt, trying to defraud them or refuse to cooperate entirely).
Eh the problem is when they dont catch mistakes for several years, and then come after you for like 80 grand at once, and then when you cant pay it threaten to seize your assets
It's republicans. Republicans are against making taxes simpler to individuals because, and they have explicitly said this, they want taxes to hurt so that Americans will be more likely to vote for tax reduction.
I'm sure some democrats get a few thousand from Intuit somewhere but at the end of the day, it's republicans voting down things like free file and the government's digital initiatives and refusing to let the US gov do your taxes for you.
It's frustrating how often people in the US blame "the government" instead of the very specific subset of that government that they keep voting for that objectively and openly and loudly do things that harm them.
The problem is, there's a history of doing the exact opposite of what they claim to want to do. Plenty of Republicans have expressed a desire to make the tax code simpler, only to promptly add to the complexity.
More recently, Elon Musk was publicly proposing a mobile app for making filing taxes easier (See https://www.fox26houston.com/news/doge-tax-filing-app), but then once part of the Trump administration, they happily killed Direct File, a program to do exactly that.
Outside the Overton Window, why are individuals taxed rather than businesses?
There was a time when the government had no business knowing the financial affairs of the citizens, but then some kings got the idea that they could tax everyone to pay for their wars. Nowadays we assume tax paying is good and socially responsible, with only tax-dodging scum not wanting to pay their taxes.
Due to tax havens and whatnot, for a company to compete and be successful, some tax avoidance is needed. So we have every corporation opting out of paying taxes. Consequently, taxation is for the citizens, not the corporations.
Companies have accountants and bookkeepers. Individuals don't unless they are seriously wealthy. As I see it, it would make much more sense to just tax companies and not individuals. Think of the amount of time that would be saved, particularly if VAT is a tax, which it isn't in America.
I have to say that the American tax system sounds like hell, compared to what we have in the UK.
> why are individuals taxed rather than businesses?
The big question to me is, why do we tax production rather than consumption? We shouldn't have income taxes at all. We should have sales taxes. Make basic necessities like food exempt.
I've always heard that consumption taxes are regressive because poor people consume 100%+ of their income while rich people consume e.g. 1% of their income.
I'm not sure it's true that rich people, on average, consume such a small percentage of their income. Think of all the rich people who end up having to declare bankruptcy--because they've spent so much on consumption that they've used up all their riches.
It's true, though, that on average, rich people consume less of their income than poor people, because they save or invest a portion of it instead, simply because they can. That's a good thing. Our current tax system discourages people from saving and investing, and encourages them to consume. Then something bad happens and we wonder why there's nothing saved to tide us over.
Exempting basic necessities from sales tax is how you prevent it from putting too much of a burden on poor people; most of what they consume is going to be basic necessities (or at least it should be, if they're rational), so it wouldn't be taxed.
You need to start thinking about the economy in terms of goods and services instead of money. Hoarded money is dead money, it's actually anti inflationary. If there are 100 apples and everyone can afford 1 apple except for a rich person who can buy it all, it's actually a good thing that the rich person doesnt spend their money to buy the apples, thus driving up the price and depleting supply.
You are conflating macro- and micro- economics a bit in that statement. Entities accumulating wealth incrementing towards infinity contributes to inflation, e.g. My family can spend 1 trillion to out-bid my competitor for ownership of a villa worth 1 billion for bragging rights.
Commodity pricing may contribute to inflation over time. But commodity prices go down, whereas currency tends to move in one direction until the civilization backing it collapses, or the specie changes.
I'm more talking about how hoarded money has no effect until its spent, at which point the consumption tax kicks in. I.e. it's not really a regressive tax because you are taxed based on how you live, not how you can live.
No, it would incentivize investing, since if you just leave money sitting under a mattress, it loses buying power over time because of inflation.
> the economy works better when people spend money
The economy works better when people create wealth through cooperation, specialization, and trade. Taxing production reduces the incentive for people to do that.
> it would make much more sense to just tax companies and not individuals
Sure, but taxes are applied due to political feasibility, not because they "make sense".
The most sensible approach is to tax natural resources (land, carbon, mines, wells, electromagnetic spectrum) and other forms of economic rent, but that is politically infeasible (edit: or more accurately, very challenging) in a capitalist democracy.
Back when the federal government was constrained to that permitted within the 10th amendment, the average person paid taxes almost exclusively through indirect tariffs, property taxes, and some levies (effectively sales tax) on purchased goods. But back then the non-wartime spend of the federal government was like 2-4% of GDP
I don't follow you or the GP - all of these (and more) are taxed. I'm in Alberta, Canada where we pay property (land) tax, personal income tax, corporate income tax, consumption tax, payroll tax, wealth tax, estate transfer tax, mineral taxes (often in-kind), and (until recently) a direct carbon tax. And that's not nearly all of them. I can't imagine the US is much different.
From an economic standpoint, the most "sensible" (i.e. most efficient and least distortionary) tax is one that relies primarily on natural resources and other forms of economic rent instead of taxing labor, businesses, non-land property, wealth, or the creation of value. However, these rent-based taxes would need to be set very high to fully replace income, corporate, payroll, sales, property, VAT, wealth, estate, etc taxes.
Switching to such a system would be painful for people whose net worth is disproportionately invested in land or who consume significant resources relative to their income. If the majority of the population fall into this category (as is not uncommon in capitalist democracies) then such taxes would be broadly unpopular, making them politically infeasible.
> that is politically infeasible in a capitalist democracy.
It’s more accurate to say it it’s politically infeasible in our capitalist oligarchy.
Just because this is the way our society works now, we shouldn’t be duped into thinking this is the natural order of things. It’s not. A democratic society with a free market economy could work very differently.
Even a theocratic ~monarchy with a ~free market could work very differently. Dubai has minimal tax burden, with normally 0 income tax and a 0 or 9% corporate tax.
I agree that it's more "difficult" than "infeasible" so I've corrected above.
But I'm not sure I agree that the difficulty is due to being an oligarchy. In a democracy where the majority of citizens have the majority of their capital tied up in land (as is the case in the US and many capitalist democracies), shifting the tax burden onto land seems like it would be broadly unpopular.
I do agree with your main point though that a democratic society with a free market economy could work very differently, it's really the transition that would be broadly unpopular, and therefore politically difficult in a democracy.
> why are individuals taxed rather than businesses
Because rich people would find ways for all their income to be realized by businesses they control, resulting in zero personal tax liability.
> particularly if VAT is a tax, which it isn't in America
America has sales tax, which is functionally the same as VAT. It's levied at the state level, and some states have a zero rate at present. We also have high import tariffs now, which again work like VAT.
> I have to say that the American tax system sounds like hell, compared to what we have in the UK.
It's annoying, but the trouble is overstated. The common version of this statement talks about jail! As long as you're not actively evading taxes, the trouble consists of some penalties and interest. Better not to have it, but also not a very big deal.
Trump is already talking about going after his perceived political enemies via the IRS. I guess if the President of the USA wants to target you, he'll get you, but still, no trouble is overstated when the government actively works against its constituents.
My lessons from working on IRS direct file lead me to believe there are a couple reasons:
1) How the welfare state is administered - as an example, the US does a child tax credit as part of the tax code, other countries have agencies that are setup to give parents money directly. We are trying to do _more_ with our taxes.
2) State taxes - the fact that there are multiple agencies that have their own rules and procedures makes things more complicated. Many localities have their own laws which can be hard to deal with. Efile has improved this since there are fewer ways for states to ask for new information
3) A lack of political will to simply. For the purposes of taxes, the us have multiple definitions of "are you 65" (were you 65 on Jan 1, were you 65 on Dec 31, etc). This makes taxes more complicated than they need to be
4) Conflicts between making things simple and incentivizing a behavior things like no taxes on tips or an EV tax credit both make filling taxes more complicated with the way that the tax code works right now. With better systems, this could all be taken care of for the taxpayer but right now it would require a more complex tax filing process
Direct File was able to solve some of these problems, even automatically using data the government had already where possible. Ultimately I think it is possible to make taxes automatic in the US but the data flows required for it are probably more complex than in other countries due to the fragmented nature of the US government.
> the data flows required for it are probably more complex than in other countries due to the fragmented nature of the US government
I'd also add the color that one of the main reasons for that complexity is political itself: In our zero-trust zero-confidence in government world today, even the notion of two .gov entities sharing data freely with one another terrifies people on any side of the political spectrum. Leftists freak out that say, their HUD application data could end up with ICE and allow a criminal immigrant who lives with them to get deported, while rightists freak out about their financials being shared with IRS to allow IRS to guarantee all taxes owed are paid.
> Conflicts between making things simple and incentivizing a behavior
Yes. When there's a negative behavior that the free market incentivizes, tax code updates can address it without sounding as scary as "More Industry Regulations". Same with social policy and other goals.
A lot of Americans are against the idea of "big government", which incentivizes government to use the tax code and other low-visibility means to accomplish larger goals.
Yes! And the closer you look, the more you notice that "both sides" have their pet things that are obviously worth complicating the tax code to do. What most of us want is just for the other half of the people to give up all their favorite complications, so that our "worth it" half would be manageable. Which is why the complexity only grows.
A car sale is an activity that is already registered with the government. It doesn't seem impossible for the data about an electric vehicle sale and it's purchase price to make its way to the IRS. The IRS could create an API to share this type of data with tax preparation software.
> their pet things that are obviously worth complicating the tax code to do
I agree that this is at the root of the problem but I think that can be addressed by making it easier to file taxes or by reducing the complexity of the tax code. The child tax credit is a relatively common type of benefit across rich countries. The tax code could be simplified by administering this benefit via direct cash transfers through a different government agency. I think from this perspective, the IRS is _extremely_ efficient at benefit administration.
My personal opinion is that the tax code is not always a bad way to administer benefits but the paperwork burden is the problem and the experience of filing taxes needs to be made easier.
Things that need work necessarily cost money. Someone doing the work for free is not inherently sustainable. Profits motivate work to get done all on its own. Profits by definition is money over and above expenses. So it creates a perpetual sustainable mechanism. Competition motivates quality and efficient pricing (eventually).
Lobbying corrupts this a bit. However they are not lobbying to suppress private competitors only government-run competition that has no profit motive or competition. When the government runs it we still pay for it, except now people who don’t use it also pay. Also wealthy people pay a disproportionate share as compared to their use due to progressive income tax.
In theory anyone can start a company if they have a better or more efficient product or offering and get the profits instead.
The usual argument is that taxes are already paying for the collection of data and calculation of amount, so why can't we just use the figure already calculated by default? This is most true for W2 employees without any uncommon circumstances, but there would seem to be a lot of people covered under that.
It's a political challenge, not a technical one. There are constituencies that reap concentrated benefits from the current system (e.g., tax-filing services) while imposing disperse costs on everyone else. Also, there are those who believe that the IRS is out to get them, so filing your own taxes is more trustworthy than going with a government-issued pre-filled default. And that going through the motions makes the pain of paying taxes more salient, so you're more likely to complain about it.
If you look at it as a practical or technical challenge, you're addressing the wrong question.
> However they are not lobbying to suppress private competitors only government-run competition that has no profit motive or competition.
But there is a profit (or rather income generation) motive: taxation is what funds the government. Parceling this work to a private 3rd party means paying a bunch of salaries that are much higher than what government employees get paid, generating profit for the company that gets taken out of the tax revenue, which increases the cost of the service for end users or the government receiving income.
Some politicians argue that government is inept and wasteful, and sponsoring no-nonsense projects that reduce middlemen in this process interferes with that narrative. If you got into office screaming that the government is your enemy, you’re not going to support projects that make it easier for citizens to interact with the government.
The 18F team was doing remarkable work devoid of all profit motives, before it was gutted by this admin. Americans are missing out on a lot of QoL improvements based purely on the false belief that private is always better than public. In France, they're rolling out a new system where your taxes are filed fully automatically, and you get a PDF in your emails with a one page recap, telling you to only contact the admin if you feel like something is wrong with the recap.
Your take is the classic economist's "it works in practice, but does it work in theory?". Obviously tax filing works better when it's maintained by the government. You're severly underestimating the harmfulness of profiteering monopolies lobbying against any improvements and buying out the competition. Also, look at DOGE, with all the ruckus they made they just couldn't find that many inefficiencies. And for such "simple" software projects as a tax-filing platform, I just don't buy that private is better than public.
One reason is that the US tax code is horribly complicated compared to anyone else, because we have tried to enact all sorts of social policy and subsidy through the tax code, because it was somehow more politically palatable to do it that way.
I have read several articles suggesting that the US does this more than most other countries, has a more complicated tax code as a result, and that is one reason why the US doesn't have more automated collection like most other countries.
But I don't have the articles at hand, and don't feel like an internet debate today, left as an exersize to the reader!
If the government can determine that my taxes are wrong, then they know the amount I have to pay. So why can't they tell me the correct number up front? (Yes, I know the reason why, but I still feel like it's a valid question)
I've always wondered if I could file some kind of freedom of information act request to get the IRS's opinion of what my taxes should be; and/or to get the source code to the IRS's program to calculate what their opinion of my taxes should be.
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That being said, my Dad worked for a few years at the IRS part-time before he finally retired. He loved it. (My Dad is one of those people who enjoys taxes and finds them soothing.) I concluded that the IRS is a white-collar make-work program. It also leaks a lot of confidential social information, because he got to see all kinds of tax returns from all slices of economic status.
The issue is the government doesn't and shouldn't know every possible detail of your life so if you're in a complex tax situation (most people aren't and can just take the standard deduction) you'd still need to do the preparations. But for the vast majority of people the government does already know what you're taxes should be because you're just taking the standard deduction which 87% of people did in 2018 and that number has grown slightly since then. [0]
For more complex cases where you have more deduction and income sources the government doesn't really know all the individual setups you may or may not qualify for and they only audit a small percentage of filers every year.
The reason it's been blocked is a mess of ideological and economic. Ideological from people who interested that want to make taxes more annoying so people are generally more anti tax and then they get elected and make cuts to the top percentages/businesses permanent while the tax cuts for the majority of citizens are temporary. This sets up a debt crisis when those 'temporary' cuts are also extended they can use to leverage for government cuts. On the economic side there's a huge amount of money made each year by preparing taxes for people too intimidated by the complexity to DIY it. So they ally with the generically antitax side to keep their business going.
They can determine your taxes are "fishy" and then demand further documentation. Say you declared you sold a car and profited, but seemingly under-reported the sale price. They'd show up and demand to see the bill-of-sale, maybe contact the buyer, etc. How would the government know ahead of time what price you sold the car for?
Most fraud about car sales is to claim a lower price in order to skip on sales taxes collected by the states' motor vehicle agencies. Not all states charge a sales tax on individual-to-individual sales. Here in Kentucky, the state constitution says that taxes have to be charged on the assessed value, so part of the annual registration is based on the assessed value (min $100 for boats or $200 for cars/trucks). I used to work for KY's Transportation Cabinet (combo DMV + highway dept).
These examples are silly, most people are not selling a car privately all the time and they can handle any reporting or changes when you transfer the ownership.
In many countries for the majority of the population they can and do determine how much tax should be paid, and many people don’t have to file tax returns.
Most of that complexity does not matter for most people because the standard deduction is higher than you can reach through itemized deductions. Even home owners can usually get more via standard than going through the trouble of mortgage interest deductions.
Except for all those above-the-line deductions and credits that apply even if you take the standard deduction. Like the new tip tax credit and senior tax credit recently added to our already incredibly complicated tax code.
The tip tax credit is only for businesses though right? That's all I'm finding when I search for tip tax credit, so that's not a factor for individual filers. Senior credit is a bit more but it's still relatively simple to claim. That would also be pretty trivial under the government prepared initial return scenario too.
My wife and I have visited several European countries, and I just don't agree. Switzerland is the land of many fees, followed by Iceland and other nordic countries. Germany, France, and the UK are also expensive. The going "low" price in Iceland right now for petrol is $8.74 USD/gallon.
(Did you know that most of the public transport in the UK is owned by German and Dutch companies? They can rack up prices with little consequence.)
The US has gotten more expensive to be sure, but IMO most of our high-cost problems stem from consolidated industries with regulatory capture (healthcare, farming+food+pesticide, tax prep, etc.) and low wages for the bottom 50%, not fees.
Why must every service and thing in the US must be a private profit making thing?
In the US, some believe that it's better to replace a government function that costs X with a private entity that charges X. The reasoning is that the efficient free market will drive down X, leading to better prices for everyone.
In reality, my city's parking meters now charge a $0.50 minimum with a service fee of $0.25 to the private company that now runs them. I've tried competing by setting up my own lower-priced meters, but that's not working out so well.
And yet the government as a whole has no incentive to take your money beyond the tax laws they pass. Individuals may be corrupt but that's a very different issue.
Whereas a for-profit company's explicitly stated goal is to make as much money off you as they can.
Indeed, and tbh "work must be paid for" is not necessarily a bad thing. In the Netherlands we pay for our tax-software via our taxes (and I still spend about 250 eur on an accountant to do it for me, as it takes me a whole evening as an someone with a (small) company, I'm better of writing hours), is it the most efficient? I think not, judging from how much our government spends on IT projects that fail. There are a lot of hidden costs.
That said, the lobbying is really bad of course, probably also prevents cheaper or FOSS alternatives.
1. If the government is in charge of deciding the tax policy and collecting the taxes, it creates a potential conflict of interest if they are also in charge of telling you how much you owe. In theory, they could charge you more than they're legally allowed to, but how would you know unless you (or someone else) also calculated your taxes? A common suggestion to this is to have the government give a return that shows what they _think_ is owed, but this creates a conflict if the government accidentally underbills you, since you're not likely to correct the mistake. In order to ensure compliance on both sides, both the government and individual need to prepare the tax return. Otherwise, one party risks being overcharged/underpaid.
2. Tax evasion is an effective law enforcement tool for catching criminals, so by putting the burden on the individual to report taxes, you add another tool in the law enforcement toolkit. From the state's perspective, it is more compelling to tell a jury "this person owed $5 but only paid $1" than "this person owed $5, but only paid $1 because we told them they only owed $1." Tax evasion is how famous gangsters like Al Capone and other shady-characters have historically been caught[0]
The tax prep industry is lucrative largely because of lobbying and consumer ignorance. There are plenty of free-file options for folks below certain income thresholds, as well as non-profits who will do your taxes for free. There are also lots of free tax-prep sites, but they are being drowned out by the advertising and lobbying of the for-profit tax-prep industry.
To add my own 2-cents: if your income comes from investments, 1099, or W2, you likely can do your own taxes in about an hour. I personally use TaxHawk [1] since it's free for federal and $16 per state return, and has the same kind of interface as turbotax and the like. If you want to save on that $16, you could use TaxSlayer [2] instead -- I've used all of them, and personally prefer TaxHawk. Just remember to decline any of the upselling they do just before you submit your refund. You probably don't need the premium service, a dedicated tax pro, nor audit protection.
#1 works fine in stores and restaurants. Why would the government be different?
#2 isn't a strong enough reason to justify the significant out-of-pocket costs and lost productivity of the US tax system. If the tax collector is regularly finding only $1 of $5 tax obligations, that seems better solved by improving the collector's record-keeping, not hanging civil and criminal penalties over the heads of 350 million citizens.
In Germany tax-prep industry is huge, there is a huge network of tax consultants plus paid online services like taxfix and smartsteuer.
The only countries I lived which didn't require you to declare the taxes were Russia and Georgia, mostly because 13% and 20% flat tax rate respectively.
Any country which does have complicated progressive tax system would require you to declare taxes at least at some cases.
Germany has ELSTER, which is a free government provided online service. I use it every year to fill in my tax declaration.
It's not perfect but it works pretty good. Not so friendly for expats since it doesn't have internationalisation, so you need to know a bit of german (I use G translate).
ELSTER is available but it is extremely complicated to use. Not even my Tax advisor uses it directly. You must be the first person I’ve heard that uses it directly.
For me not worth to use it having extremely good tools like the offering from WISO.
In my opinion a complicated tax law is a direct attack from the State against low and middle income population. If you have low income and poor education you will not be able to make use of the tax law to increase your available income, something that high income citizens do daily.
In this case we have to thank the free market to provide really easy tools for less than €30 so middle and low income citizens can start at least to take advantage of the tax law.
I’ve lived in multiple countries and always did my tax report myself. And the German situation is so blatantly designed, compared to other countries, to benefit only a very small portion of the population.
Not only that, If the amount of man/hours that the whole country of Germany spends doing taxes would be spent on productivity gains or just normal work, the country would become immediately the richest country in the world. Instead, it’s just wasted effort and work.
I’ve used Elster to file my German taxes until I left the country. Very common to use that software directly. Probably not much fun though if one’s situation isn’t straight forward.
There is a world of difference between not having to declare taxes, and having an industry of tax filers.
In France you have to declare taxes, but everything known to the tax authorities is pre-filled, leaving you to add any special incomes/deductions that didn't come trough regular channels that get automatically reported.
You still have tax consultants to help you optimise if there are higher revenues, but it's a very niche service.
Germany, as a de-facto vassal state of the US, is the exception that confirms the rule. This is an observation that comes from almost a lifetime of living in this region of our world.
Because we were founded on, and still prefer, that the government stays out of as many things as possible. It's always cheaper to pay a private company for a service than it is to pay your government to do it. And yes, you're paying your respective financial authorities to do it through your tax dollars.
Because most people don't know how simple doing their own taxes are. This is aided by a few people who have a complex situation and would have to have a real accountant do their taxes in every country.
But it’s typically not simple. People often have some kind of life complexity that makes their taxes hard to confidently self-navigate here in the U.S.
Receiving government assistance? Some kinds are taxable, some aren’t.
Moved states? You have multiple state filings now.
Got married? divorced? Splitting custody or property? Special tax forms to fill.
Native American? Veteran with disability? Senior? Student with loans? Bankruptcy? Freelance income? Etc.
Normal life events turn into tax complexity consequences. And without expert help, it’s hard to know if you’re doing your taxes correctly, which adds stress and time.
> Receiving government assistance? Some kinds are taxable, some aren’t.
One would think that the government should know what government assistance you're getting. In any case, taxable benefits get reported to the IRS automatically on form 1099-G.
> Moved states? You have multiple state filings now.
Arguably irrelevant. You can change how filings work federally without changing how state filings work. Perfect is the enemy of good, etc.
> Got married? divorced? Splitting custody or property? Special tax forms to fill.
Sure. Sometimes you have life events that happen where you'll need to make adjustments. Such possible events can be mentioned in the letter / email you get from the IRS, with details as to how to adjust the filing. This is typically how it's been done in other countries with automatic filing.
> Native American? Veteran with disability? Senior? Student with loans? Bankruptcy? Freelance income? Etc.
Income typically gets reported to the IRS on a 1099 or a W-2.
Loan interest gets reported to the IRS on 1098-E, so the deduction could be automatically calculated.
Presumably the IRS would know if you previously filed a tax exemption and could assume that hasn't changed if it's based on things like having registered membership in a federally recognized tribe. Even if you haven't filed that exemption before, presumably the government would know that you registered the membership.
The government knows your birth date so presumably they'd be able to calculate when you become a senior, where that's relevant.
Bankruptcy is one of those special cases that I'd expect would be an exception case where you'd need to adjust the filing (and your trustee would probably help with that).
Most people don't have special cases that require changes. The IRS already has a shockingly large amount of data on people. I encourage you to try getting your tax transcript some time[1], it should be illuminating.
The short answer is central banks are not setup to offer services directly to the public.
This is different to the tax office in that people already need to interact directly with it! Anyone in the UK can fill out a Self Assessment, for example, however it's optional for almost everyone, because Pay As You Earn takes the tax off your employer instead.
Yes, you can download the form 1040 and fill it by yourself, you'd need a few Schedules attached. They all have instructions available online, your work has to send you a copy of everything they paid you and into the IRS (regular jobs always err on the side of overpaying), and while it is not hard, it definitely looks intimidating and takes time to understand, especially the deductions.
You can also just not file your taxes, if you don't owe anything (and as I said, jobs always err on the side of overpaying) they won't bother you, but most people end up eligible for the tax refund, so it is more beneficial to pay for that service.
Sad part is, when I started working, this was normal. My father showed me how to do it. I did it for a few years and then TurboTax came along and I used that for free. Then they rug pulled me into a deluxe one year because I had 1099 income and ever since I’ve been jailed into paying if I want to use them. 1099 or not.
I used to do that every year. It wasn't hard. However one year I forgot to copy line 12b from form 9876 to line 34c of form 5432 and when the IRS caught that I had a big mess to clean up (since state taxes copy federal taxes so I had to refile state with the corrected numbers...). Now I just pay a small fee to FreeTaxUSA (I figure they deserve some money for their efforts in creating software).
One thing I can say for sure: doing taxes with a computer takes me longer than filling out the paper forms by hand! There are so many delays while "calculated" (as if a ghz computer can't add numbers fast), and loading question pages that I can obviously skip (I never worked for the rail road, I'm not blind...) but take extra time because of how they setup the UI.
Besides the point. The point I was making is that because I had one year of 1099 income in the past, I was paywalled into paying. I no longer use TurboTax as my tax needs have changed. Thanks though but I wasn’t soliciting for alternatives.
That's what I do. It's really not very difficult if you don't have a complicated income situation. Even with some self-employment I found it straightforward. Once you've done one year, subsequent years are very similar (but read the bulletins that talk about "what's new this year" because there are always differences.
The spreadsheet downloadable at https://sites.google.com/view/incometaxspreadsheet/home (no affiliation) is helpful to avoid math errors and get the entries from the various schedules into the proper place on the main forms.
I have done this a few times, but for me it takes several hours and I always am worried I have made a mistake. If you have simple investments you can still run into confusing things that are very hard to follow.
> You can also just not file your taxes, if you don't owe anything (and as I said, jobs always err on the side of overpaying) they won't bother you
From the IRS website:
>Who must file
>Most U.S. citizens or permanent residents who work in the U.S. have to file a tax return.
>Generally, you need to file if:
> Your income is over the filing requirement
> You have over $400 in net earnings from self-employment (side jobs or other independent work)
> You had other situations that require you to file
Not sure if your intent was to discourage filing, but it read that way to me.
IRS says you are “required to file”, but in reality the only penalties for non-filing are as a percentage of the amount of tax owed. If no tax is owed (and in fact you are owed a refund), then there are no penalties for not filing.
OTOH it would be a pretty dumb move since the chances that the amount taken out of your checks was exactly right is very small, and you’d be leaving hundreds or thousands of dollars in refunds unclaimed.
Most people with a job have to file. If you're due a refund and don't file to claim it, probably they won't bother you but technically you could be penalized for failure to file on time.
>and while it is not hard, it definitely looks intimidating and takes time to understand, especially the deductions.
Even this is overselling it.
Most people have ZERO deductions to deal with. You put in your W2 pay, you take the standard deduction, and you file and get your money back.
Next time you use something like turbotax, download the forms it generates and look at them. There's zero complexity. Turbotax doesn't do anything. It's literally filling in 14 rows of numbers that come directly from your W2.
Hell, turbotax purposely runs fake animations and makes you waste a ton of time saying "Oh we are looking for all these deductions" but it's all a lie. None of the animations actually do anything. Most of the deductions it is supposedly checking for would Never apply to someone with a normal job. They want you to think it's complicated. They will ask you questions they know the answer to just to waste your time. Every single year, TurboTax asks me if I'm eligible for the earned income tax credit, and every single year, TurboTax knows from the previous questions that I cannot possibly be eligible. They ask me anyway, because it seems like a complicated credit so it makes taxes seem more complicated.
Taxes could take less than 15 minutes for nearly all Americans. Turbotax's bullshit, even disregarding the stupid tax they are charging the whole country just to copy some numbers from column a to column b literally wastes everyone's time every year.
People who insist that taxes are complicated are flat out wrong. If you run a small business, you absolutely have the choice to just file extremely simple taxes and pay a higher tax rate. It is a choice to attempt to take every possible deduction. Each and every one of those deductions is a handout to business owners. They bitch and moan about how bad taxes are, but their taxes are complicated so that they can make more profit.
Guess what? Nobody forces you to run a business, which again, is a handout to capital owners. A few hundred dollars in permits or registration every year is a perfectly valid cost to enable you to take advantage of the insane benefit of "you can literally cause hundreds of deaths but as long as you weren't obviously grossly negligent you are in the clear". Nobody forced you to attempt to take every single handout offered every single year. Nobody forced you to be your own boss, to own capital, to profit off of the labor of others.
Such entitlement. These same people will turn around and cry about "freeloaders" and "welfare queens" and "handouts"
I don’t know why assume that in every country in the world that is free. In my European country until 15 years ago or so you had to hire someone to do your taxes for you, and currently the free method only works for the most simple tax filing. In fact what you get is called a “draft” of your tax filings because you’re supposed to make sure it’s okay, and it’s your responsibility if you miss something or if the draft is wrong.
And obviously the draft usually assumes that you will have to pay more tax, since there’s a perverse incentive given it’s the government who fills it for you.
The tax preparation industry exists in much of the world.
Taxes are simple if you live in one place and only receive income from your employer. If you have multiple sources of income, connections to multiple countries, etc., things can get very complicated very fast. That's why the tax prep industry exists - and not just in the US.
That being said, the Internal Revenue Service could prepare the taxes of most Americans. A simple system of, "Here's what we think you owe, based on the information we have on hand - sign and submit if you agree" would work for most people.
> the Internal Revenue Service could prepare the taxes of most Americans
IRS Direct File[1] did exactly this. It apparently worked really well, and people liked using it, netting ~$20 billion in savings to the Americans that used it (roughly half of that came out of the pockets of the tax-prep industry).
Then, DOGE got to it and the new administration's IRS commissioner killed the program.
In Australia, if you work in multiple places and at multiple companies, it’s still trivial to file your own taxes. You log in to the government portal, where the collected amounts of tax from each income source, including bank interest, is listed. It can get more complicated if you have your own business but for the majority of people it’s easy and doesn’t require a third party.
Australia has a progressive tax structure, right? If you have multiple income sources how does each source know the proper withholdings? How do they know what deductions you'll be eligible for or are wanting to take?
If it works anything like what we've got in Norway, they take a rough percentage, and once every year when the taxes are filed, the IRS equivalent charges or repays the missing amount.
I don't understand how these could be issues. They aren't in my country.
You're still responsible.
Tell each company how much to withhold.
If they take too much, you get it back when you file taxes.
If they don't take enough, you pay a penalty for having too large of a bill when you file.
The issues you mention exist regardless of how many employers you have, because you can have income that does not come from an employer (e.g. stock dividends).
This sounds the same as the US then. If you have more than one income source or you're planning on taking something other than the standard deduction you need to tell your income sources to change withholdings. If they take too much, you get it back when you file taxes.
What's the big difference? You don't need a tax preparer to do your taxes in the US, and if all you have is a normal W-2 income and a bit of bank interest its a pretty simple couple of forms to file.
It's hard to tell if there's much of a difference or not since I don't really know the US system (and I'm, in all likelihood, from yet another country different than GP).
The simplest cases, however, don't really require filing forms at all. The withholding process sounds similar, and when the time for filing taxes comes, you get a pre-filled return sheet with withheld taxes and your pre-calculated actual tax based on the information the tax office has.
Employers directly report income to the tax office, so that information is already included. Banks also automatically withhold taxes on the interest they pay and report it to the tax office. I think banks and broker companies usually report sales of stocks etc. made through them as well.
The same pre-filled return sheet includes national and local income taxes that have been automatically calculated based on your place of residence. (I assume this is more complex in the US due to different state legislations; here the tax legislation is the same everywhere even though local tax rates vary.)
If you don't want to add deductions (in addition to standard ones) and you don't have any corrections to make, you don't need to file any forms. The only things you need to do are to pay the difference if you owe something or to report your account number for a refund if they don't have it already. Otherwise filing in a simple case is a no-op.
If you do want to file for deductions or make corrections, you can do that with an online form.
And of course you still do want to check that the pre-calculated information is correct and whether there are any non-automatic deductions for which you're eligible.
More complex cases are, well, more complex. If you've got income from renting an apartment, for example, you do need to report that information yourself. But it's still a relatively simple online form.
Real estate tax is handled separately from income tax. You get sent a bill with a pre-calculated sum based on property registered in your name. If you have no corrections to make, you just pay the bill.
In contrast, I think even small businesses commonly hire accountants since for them the process is probably more complex with all the deductibles etc.
If the simple cases are similarly simple in the US and making corrections is a relatively straightforward form away, I wonder why there always seems to be such a big fuss in the US about filing taxes. Because of state/local differences in tax code? Just overall complex legislation? Or maybe it's just more common to have income from a variety of sources so more people need to deal with the more complex cases? Is the filing process paper-only and the only way to do simple online filing with automatic calculation to go through commercial tax-filing software?
In the UK you get a code based on last year’s earnings, which the company uses to set a flat rate of withholding on each paycheck. If there’s any discrepancy that usually just feeds into next year’s code.
In Australia, you probably need to tell the companies about the other income sources, and they will attempt to withhold at the appropriate rate. Then at the end of financial year, you go to your pre-filled online tax return which has all the figures reported by each company you work for already present and sums up whether there’s a refund or payment due. This is also where you enter any deductions.
> A simple system of, "Here's what we think you owe, based on the information we have on hand - sign and submit if you agree" would work for most people.
They already do that -- if you calculate your taxes wrong, they will send the adjustment (they will do it both ways, pay you back or ask for the remainder). I guess they might not be aware of all the deductions, but standard deduction beats itemized one for the majority, so they can 100% automate this whole process if they decide to. For complex cases and businesses, sure, you are on your own, but at least most W2 should be covered.
Yes, but tax filers have potential civil and criminal liability risk if they make a mistake.
Presumably much less if one pays more than the IRS calculates is owed.
Essentially both the IRS and tax filers verify correctness of the tax filer's return and the tax filer can be prosecuted if they make a mistake according to the IRS.
> Yes, but tax filers have potential civil and criminal liability risk if they make a mistake.
How is this an issue? Why would it be different under another system?
I see you posting a lot of what I think are pro-tax-prep messages but they don't seem to have any substance. Please try to take them to the conclusion of an argument. (That is, finish by connecting the facts you are posting with some assertion about the desirability of the current system, or some assertion the parent has made.)
What I mean to highlight is that although a mistake in filing may lead to the IRS rectifying the mistake by sending/requesting the error balance, there are other possible effects, including civil and criminal liabilities.
This is undesirable. As mentioned in many comments here, the vast majority of filers, especially those with one employer and no substantial investment income, should not be required to file their taxes and instead the IRS should communicate the calculation result and ask if the filer disagrees.
This is a classic problem related to the "you slice, I choose" false dichotomy[0]. Essentially, even assuming it costs zero time to fill out and file a tax return, any mistake at all could lead to a negative consequence to filer.
As an aside, always choose to choose and not to cut the cake :)
I suspect failing to report significant income to the tax authorities would be considered tax fraud in just about any legislation. If there weren't any kind of a potential penalty for failing to report or for significantly under-reporting, doing so would be potentially beneficial with no drawbacks.
Failing to report income or reporting false information for financial gain can lead to extra tax or prosecution for tax fraud where I live. I'd definitely be careful to report all income if I had income from sources that don't automatically withhold taxes, especially if it were significant.
I don't think they'll drag you to criminal court if you make a small mistake, though. But if you fail to report thousands of euros of income and the authorities get wind of it, sure, especially if it seems intentional.
I don't know if the risk of prosecution or other legal consequences is somehow greater in the US.
Right, when the Europeans say the tax is paid as you earn and the authorities let you file differences free and easily, they mean the vast majority of tax payers. It is rare to be the exception.
Whereas I guess American Exceptionism (tm) means you all have to pay a rent seeking company to file taxes…?
In Ireland, and I think many other countries, if you have under 6k non-employment income, it’s ~trivial; you fill in a form on the website. It only gets complicated over that (though you would still typically do it all online; the form just gets _a lot_ scarier)
As an European with multiple sources of income, all that boils down to is literally excel style fill in the boxes deal. There's even free tools that can handle the simple formulas if I don't trust my calculator enough. 1 hour a year at absolute worst; definitely no space for a finacial parasite to latch onto.
You have a very simple tax situation. Many people do not.
In the US, if you just have wage/salary income and an investment account, and you lived the entire year in one state, your taxes are also very simple. You can fill everything out yourself in one evening, or pay $100 to do it with tax preparation software.
But things can rapidly get complicated. Did you move from one state to another during the year? Do you live in one state but work for an employer in a different state? Are there any credits or deductions you're eligible for? Or god forbid you live abroad, at which point you're dealing with double-taxation treaties and the like.
No, they would know exactly what they know now. Employers already report your earnings to both the federal and state IRS agencies and pay your withholdings automatically adjusted for your dependencies. So a simple form that says you made X and claimed Y dependencies. Click submit to confirm…
That would be simple enough for most people (1 job, 1 home, maybe some kids) and it doesn’t require the government to know anything additional.
In that most common scenario no tax accounting service should be needed. Honestly a 1040 isn’t that complicated in that scenario either, but is still too difficult for a good number of people and it’s just unnecessary.
How exactly? Currently, you report your earnings, your employers report what they've paid you, and banks report specific transactions. How does simplifying/eliminating the deduction process (which is all that an accountant is doing) give the government more info about you?
This one government agency would need to know the superset of everything about you that could possibly be reported on any tax form. The simple case breaks down quickly. If taxes were redesigned to become overall much simpler, then sure, the reporting could be much simpler and more passive for the filer.
Nobody is suggesting they create a government super computer that does every single person's taxes perfectly.
They're suggesting letting the irs actually use the resources they already have to automate the vast majority of the people's taxes to save everyone time and money.
It doesn't have to be perfect to be a huge improvement.
Businesses paying people already file copies of the W-2s and 1099s that they send to their employees with the IRS, meaning that, for a very large chunk of Americans, the IRS already knows everything needed to fill out their tax forms.
Having lived in both the US and several European countries, America is already the privacy nightmare because all your data is with corporations who can do absolutely anything with it. European-style effortless automatic tax filing certainly wouldn’t make it any worse.
(Also it’s rather ironic that people who think like you have been voting for the party which is currently enabling Palantir to build Chinese-style surveillance in America. But as long as the data is owned by billionaires and they promise to only use it against the “others”, I guess it’s fine.)
In the UK, for example, if you are a simple case (PAYE employee, no other sources of income) they just do it, you never interact with HMRC at all in the ordinary procession of things. You may get a yearly summary form (P60) but that's about it.
Here in Australia everyone must fill in an annual return, but it’s a fairly well automated online system and they’re probably already already have most of the fields filled in, you just need to add anything more complicated or any deductions you think you’re owed.
In both systems you can have an accountant file for you, or use other software, but you don't need to and most British people will never file a single return in their lives.
I think the point is that the vast majority of people don't really have a unique tax situation. And all the data already exists. There's just no framework set up to allow this to be automated like there is in other countries.
It should be the case that all your basic taxes get calculated for you and taken at the point you're paid by your employer. Anything exceptional should be able to be claimed back via a web portal somewhere.
So it's not like 160m tax returns NEED to be filed. That's just how it is today.
There are a lot less loop holes than in the past. In the 1950s taxes on the rich were 90% - but there were so many loopholes the rich in reality paid a similar tax rate to their peers today where the tax rates are lower, but there are also less loopholes.
In the 1950s the common person couldn't take advantage of most loopholes (I'm not old enough to remember, but I'd guess mortgage interest was the only useful one, the rest where $100 here and there but it never added up to much for the common person)
Most of the tax code is irrelevant to 90+% of people. ~90% of people just claim the standard deduction every year, you have to be significantly well off or in an odd tax situation for itemized deductions to come out to more than the standard deduction.
You can do taxes for free most of the time. Millions of us do every year, and the IRS estimates that 70% of tax payers could file for free.
> Why must every service and thing in the US must be a private profit making thing?
It isn't. There are roughly 2 million nonprofits. "Nonprofit organizations play a significant role in the US economy. In 2022, there were 1.97 million nonprofits operating in the US"
And there are endless government programs and millions of government employees. The federal government alone spends over $6 trillion of our money, and money we don't have, per year, and most of it is on mandatory social programs.
"About 60% of all federal spending is categorized as mandatory spending — which amounted to $3.8 trillion last year. This spending is essentially on autopilot because it funds programs whose eligibility rules and benefit formulas are set in law. This consists mostly of programs like Social Security, Medicare, Medicaid and Veterans care."
When people say they are “paying their taxes”, really what they’re doing is checking whether the automatic tax deduction out of each paycheck was properly calculated over the whole year, and whether any special circumstances make them eligible for a refund (or whether they’ve had other income they need to pay tax on).
If you happen to be an entrepreneur, a foreigner (relative to the country of work), or an American citizen (despite holding the citizenship you're on, thanks FATCA!), then, yeah, I can see why you have never encountered the simpler arrangements.
If you're an ordinary citizen of most countries and work under a company, the company is obliged to track it for you. What you get is a very simplified form asking if you have more income sources than from your work, and the local tax system means that most of them legally do not have any (for example, banks collect the taxes for the interest you have received, not the arcane American system where you're the one responsible for that).
In a PAYE system, merely being a foreigner isn't _usually_ an issue, provided that you're domiciled and don't have foreign income. The exception, as you mention, would be a US citizen; the US's approach to foreign income of its citizens is sufficiently weird that they'll generally have annoying tax situations.
> What you get is a very simplified form asking if you have more income sources than from your work, and the local tax system means that most of them legally do not have any
If even that. In Ireland, and I believe the UK, you only have to fill out that form if you actually _do_ have non-employment income which is not deducted at source. Most peoples' only interaction with Irish Revenue would be to claim tax credits on rent/mortgage/medical expenditure/whatever.
In my country, all my tax is deducted from my salary before reaching to me.
For other things, I can go to a "Virtual Tax Office" with my browser or my mobile banking application and pay with cash or credit card, sometimes with zero interest installments, even.
The reason this topic continually comes up is that people in the US are stupid and bad at math, and the IRS is very heavy-handed and issues penalties for minor tax errors, so people are afraid to interact with the process without a trusted intermediary.
The irs is neither heavy handed nor particularly quick to issue penalties.
There is an extremely effective and powerful alliance between certain republican politicians and tax industry corporations that work to convince people taxes are hard and the gov can't do them and they need an agent.
Okay, the official IRS policy is that you don't have to file taxes if you don't owe anything. What happens if you do not file your taxes, but the IRS believes you owe them money?
I mean, it depends if the amount is $10billion or $10, but generally they start by sending you a letter at wherever they think you live saying "hello, please write us a check for $x, thanks".
Then they do that... again. At some point they probably put your name on some kind of list of Bad Taxpayers but unless we're talking millions here they probably aren't sending agents after you in specific.
That's how it works in the US also, though personal property and real estate taxes are collected at the state and local level (if they exist, which is dependent on the state and local government).
For most people in the US, filing their taxes is a very simple process, which is why it's so annoying that Intuit has successfully lobbied to integrate themselves into the process.
I mean, you answered your own question: because a minority found a way to make a profit at the expense of the majority.
(This particular situation is an alliance between the tax preparers, who have the obvious interest, and republicans who are ideogically comitted to inefficient/ineffective governments)
> Why must every service and thing in the US must be a private profit making thing?
This is a side-effect of the Protestant Work Ethic. Weber coined the term in 1905 as a way to explain why the Northern European countries (who were predominantly Protestants) were wealthy while the Southern European countries (who were predominantly Catholic) were poor. Prior to the election of JFK as US President, anti-Catholic sentiments were widespread throughout the US (which explains why Irish & Italians were not considered "white" until the early 20th Century). Even today, many Evangelicals do not consider Catholics to be Christians.
> Calvin taught that all men must work, even the rich, because to work was the will of God. It was the duty of men to serve as God's instruments here on earth, to reshape the world in the fashion of the Kingdom of God, and to become a part of the continuing process of His creation (Braude, 1975). Men were not to lust after wealth, possessions, or easy living, but were to reinvest the profits of their labor into financing further ventures. Earnings were thus to be reinvested over and over again, ad infinitum, or to the end of time (Lipset, 1990). Using profits to help others rise from a lessor level of subsistence violated God's will since persons could only demonstrate that they were among the Elect through their own labor (Lipset, 1990).
> Selection of an occupation and pursuing it to achieve the greatest profit possible was considered by Calvinists to be a religious duty. Not only condoning, but encouraging the pursuit of unlimited profit was a radical departure from the Christian beliefs of the middle ages. In addition, unlike Luther, Calvin considered it appropriate to seek an occupation which would provide the greatest earnings possible. If that meant abandoning the family trade or profession, the change was not only allowed, but it was considered to be one's religious duty (Tilgher, 1930).
These 2 paragraphs also explain why many in the US have such an utter hatred for any sort of social safety net for poor people - those people are damned in the Biblical sense and therefore it is a sin to give them any sort of money, food or healthcare.
During the Cold War, one criticism of socialists/communists was that they were taking orders from Moscow. Likewise, Catholics were presumed to be taking orders from Rome.
> Supporters of the Know Nothing movement believed that an alleged "Romanist" conspiracy to subvert civil and religious liberty in the United States was being hatched by Catholics. Therefore, they sought to politically organize native-born Protestants in defense of their traditional religious and political values.
During the later 1800s, many "charity hospitals" would abduct children of Catholic women and then sell them as orphans that other people could adopt. The Klu Klux Klan would also attack Catholics - not just burning crosses and lynching black people.
> Not only were Irish immigrants viewed as interlopers by many white Americans (an irony, considering the historical treatment of Native Americans), but these immigrants were Catholics in a primarily Protestant land. It was a religious difference that widened the divide, as did the fact that many Irish immigrants didn't speak English. As strange as may it may sound today, Irish immigrants were not considered "white" and were sometimes referred to "negroes turned inside out."
The Wikipedia page has lots of links and references about PWE.
> In 1998, the International Sociological Association listed this work as the fourth most important sociological book of the 20th century, after Weber's Economy and Society, C. Wright Mills' The Sociological Imagination, and Robert K. Merton's Social Theory and Social Structure.[3] It is the eighth most cited book in the social sciences published before 1950.
The Republican party is explicitly against any government intervention to simplify tax filing for Americans, so it makes it hard for improvements as they currently control the government.
It also means its hard for Democrats to improve as well since removing any improvements in filing are some of the first things Republicans push to undo when the come into power.
After a recent post[0] suggesting the federal tax code was already online in machine readable form, my first thought was "could I write my own US tax-filing software?" But the answer is still no.
Paying taxes doesn't mean just paying federal taxes. Users don't want free Federal taxes software if it means they'll have to re-renter all their information into different software for their State taxes -- especially when more than one state is involved, such as for people who cross state lines for work, or moved mid-year. A tax service is a massive value add.
The "free" software you get to do your federal taxes will be no threat to TurboTax until the states are required to publish their tax codes in the same machine readable format as the feds.
I lived in WA and NV and didn't notice either of these. I miss not having to deal with state taxes not to mention the 10% of my income that goes away to who knows what.
If you are high income, of course you don't notice differences in levels of regressive taxes on consumption (including real property taxes, which, while not nominally this, for most people end up as a—direct for homeowners and indirect for renters—consumption tax on housing) as you do levels of progressive taxes on income (which is why frequently the income-tax-heavy states with higher average tax burdens also have lower tax burdens at equivalent income levels for median and lower incomes.)
> Are the sales taxes generally higher in those states, which offset the lack of income tax?
Sales and property taxes are often higher, but this (which shifts the tax burden down the income distribution compared to progressive income taxes) usually does not fully offset the lack of income tax; the no income tax states are generally low average tax burden states (but may still have higher tax burden at low-to-moderate income.)
Depends on the state, some have higher property taxes.
Higher sales tax tends to be regressive because it doesn’t tax money you don’t spend, nor does it tax things where sales tax doesn’t apply like buying assets.
My state is 9%, and it kicks in at under $20K. No state has a high enough sales tax to offset that income tax.
Concrete numbers: Say you and spouse collectively make $300K. That's a bit under $30K in state income tax. On top of that you'd pay property taxes (admittedly low).
Sorry Texas, but your property + sales tax isn't that high.
I never understood why the Revenue can't provide a set of simple online forms for tax returns like India does. Heck, India provided Excel sheets with VBA script for many years, that produced an XML which can be submitted as tax filing. Tax filing is now a 15-minute affair for a salary-only income in India.
The complexity is a feature not a bug. If you have more complexity, you have more opportunities for loopholes. Those loopholes are currently used by those wealthy enough to hire creative firms to help them get through them and minimize owed taxes
If there’s one outcome I really hope from AI automating work, it’s taking away the advantage the monied class has in this regard. Then perhaps there’s less purpose for the complexity
Maybe the AI will create a level playing field and make the tax prep / loophole industry collapse.
Or maybe the free models will start responding with
"""
It looks like you're asking for help with tax preparation. I recommend our designated AI tax service [link to service that asks you to upgrade your plan or pay a one-time fee].
"""
They are operating free models at a loss now, but at some point they are going to have to turn a profit. At that point tax prep becomes a revenue stream for AI as well.
Of course, this is not to say they always are stupid or illiterate, it's again usually just another form of exploitation, they don't have (or feel they don't) time to read it.
Which is arguably explicit exploitation/enslavement - the Walmart door greeter doesn't have a difficult job, however their role doesn't allow them to do anything that would benefit themselves. I wouldn't care if they were reading their phones or a book, but noo... can't have the peasants educating themselves.
And they aren't paid enough, so when they return home, they likely don't have any time after needing to perform meal prep, taking a second job, etc.
The USA is a third world country in many respects.
They could still live side by side. You could still have a system where you have simplified filing where for 99.99% of the people you can just pretty much fill in one or two fields of what you made and something like that and even maybe get this data directly from the employers. That's how it works in Sweden. And then for the people who have complicated business, you could have a more complicated form where you need to hire a lawyer or accountant to do it. This is just assuming you don't care about whether or not there are loopholes for people. Like that's a political decision maybe more, because I guess the people defending them would say that there are good reasons they exist and you know wealth creation and so on. But it makes no sense to make it so complicated for people who have very simple lives where they have one employer who is paying them a salary and that's it.
My entire life (in the US) there has been the idea floated that our tax code should be simplified to the point where filing can be done on something the size of a postcard.
We absolutely could do that, but the government has no incentive to do so. At least in the US, taxes are a form of control, a source of power for those in charge, a political chip for elections, and a mechanism to further the wealth divide. Taxes are not primarily meant to fund our government, and definitely don't include goals related to making the average person's life easier.
This idea is "floated" by the exact people who make taxes complicated in the US.
Every time they insist they want to "simplify" taxes, they demonstrate that what that means is just another tax break to wealthy businesses.
The DOGE team shut down a simple tax filing system the IRS had freely made available.
It's republicans. Stop saying "Government" when it is republicans
Form 1040 isn't even complicated! But republicans have convinced millions that the IRS is going to black bag them for missing a decimal point somewhere.
Guess what! The IRS is not funded enough to care! They will send you an automated form saying "We fixed it for you, here's how much you owe/are getting back". You can even ignore that letter and you won't end up in prison! They just seized a couple of my state tax returns!
The issues you raise are important, they also aren't partisan. The specific system used for filing, while important, has nothing to do with how simply or complex our tax code itself is. If they want to make it possible for me to file half a dozen forms through an IRS-run portal rather than TurboTax, great but that doesn't simplify the tax law.
Both parties are responsible for the complexity of our tax code, how long they allowed TurboTax to run the show, and how poorly the tax revenue is spent.
Much of the complexity is to close loopholes. Many things in the tax code start out fairly simple, then people find ways to use them in ways that were not intended, and then the simple thing becomes complex as additional rules are added to try to fix that. This can iterate and what started out as a couple of sentences that most people knew what they intended becomes a few pages of convoluted rules.
>The complexity is a feature not a bug. If you have more complexity, you have more opportunities for loopholes. Those loopholes are currently used by those wealthy enough to hire creative firms to help you get through them
Agreed that the complexity is a feature but it's not for the rich ( though the rich will take advantage of it, and why not? ) . It's mostly for the powers that be. If there were a 'flat' tax ( and one could argue what constitutes a flat tax) the rich will be more willing to pay that flat tax.
I'd say complexity support a very large govt, keeping several people employed including accountants, tax software companies etc. It serves the parasite class.
> If there were a 'flat' tax [...] the rich will be more willing to pay
That's just because moving from progressive-taxation to a flat-tax reduces how much they pay!
The "simplicity" of the math done by their usual accounting firm that does their taxes for them is irrelevant by comparison.
_________
To illustrate why the burden shifts, suppose the nation of Elbonia needs a constant $540 to operate, and it moves from a progressive tax to a flat tax.
This year, progressive taxation, rising %:
90 peasants each earn $10 and are taxed 20% -> $2 per peasant.
10 nobles each earn $90 and are taxed 40% -> $36 per noble.
Total collection is $540.
Next year, flat tax, same % for all:
90 peasants each earn $10 and are taxed 30% -> $3 per peasant.
10 nobles each earn $90 and are taxed 30% -> $27 per noble.
Total collection is $540.
It should be no surprise that most of the Elbonian nobles are "willing" to see that change happen. Meanwhile, the peasants that are already living paycheck-to-paycheck have to plan how to cut back on luxuries like keeping their teeth.
It's worth pointing out that the Treasury takes in tax revenues throughout the year. The sources of that income are:
50% Payroll Income Tax. 35% Social Security Taxes. 7% Business Taxes. 7% Excise Taxes.
70 years ago they were:
25% Payroll Income Tax. 25% Social Security Taxes. 25% Business Taxes. 25% Excise Taxes.
I think the priority is fixing this distribution to levels which were historically perceived as being more fair. The wealthy are one problem. The oversized corporations are the everlasting machine which drives them.
Excise taxes are effectively sales tax but only on specific products. This is less economically efficient than broad-based taxes unless the thing you're taxing is something you're specifically trying to discourage (e.g. cigarettes) rather than having the purpose of generating revenue, but since 1955 the government has become more inclined to ban things it doesn't like than tax them.
In a global economy higher business taxes just cause large international corporations to incorporate in a different jurisdiction, which gives them an advantage over smaller purely domestic corporations, which is bad.
Social Security is already taking in less money than it's paying out. Reducing the Social Security tax would imply reducing Social Security benefits, since that's where it goes, unless you're proposing a more significant reform of the system in general.
The size of corporations and the amount they're taxed are two entirely different things. Indeed, the tax code does a lot of things to encourage corporations to be larger, like taxing dividends and capital gains after corporate income has already been taxed, which creates a tax preference for leaving the money inside of an existing corporation rather than investing it in starting a new competitor.
> In a global economy higher business taxes just cause large international corporations to incorporate in a different jurisdiction, which gives them an advantage over smaller purely domestic corporations, which is bad.
This is the common wisdom. I doubt it. The legal system in the USA is worth paying for. If these companies really want to submit to European law, then, they're welcome to it. I don't think that loss actually hurts domestic businesses but helps the massively.
Companies are subject to the laws in all the places they do business. They pay income tax in the place they have net income, which is something that they control themselves.
Corporate income tax is essentially designed wrong. Property tax is where the buildings are, payroll tax is where the workers are, sales tax is where the customers are, corporate income tax is where the profit is. Which they just put in the country with the lowest taxes.
It's basically this: Employees in the US get paid $1B to design a product that employees in China get paid $1B to manufacture and then it gets sold to customers in Europe for $3B. The net profit is then $1B, but where is it? If the subsidiary in Ireland pays the subsidiary in California $2B for the design then it's in California. If they instead pay the subsidiary in Shenzhen $2B to manufacture it then it's in China. If they instead pay them each $1B then it stays in Ireland. And then the company picks based on whichever one has lower taxes.
There is no real way around this because in real arms length negotiations it would depend on which subsidiary has more leverage against the others, but in modern companies what that really comes from is the strength of the company's brand or customer lock-in as a result of patents or copyrights, since without them the profit would be negligible because there would be no barriers to competitors entering the market and causing razor-thin margins, but all of those things are easy to move into whatever jurisdiction you like since they only exist on paper.
So international corporations pay taxes in Ireland and purely domestic corporations pay taxes in California which puts the domestic corporations at a disadvantage when the taxes in California are higher.
To get accurate numbers you need to scale either the before or after numbers to reflect changes in the effective overall tax rate over the time period.
You also need to look at overall tax burden, not just federal. It used to be that the states levied taxes and did stuff. Now mostly what happens is that the feds levy taxes and piss it back onto the states in the form of grants to do qualifying stuff.
IDK how this distorts the percentages but it certainly does.
I disagree. This is a way of looking at _where_ the government funding comes from or it's a way at looking at the _share_ of burden by source. The overall tax rates don't actually matter in this case and only implicate how that share is distributed within the group.
The point I'm trying to make is businesses used to carry a more significant fraction of federal spending during a period where they had less overall influence relative to the citizen.
Now we're inverted. Businesses have excepted themselves from most of the costs leaving that burden to the citizen, but we live in a country where business needs are put well ahead of the citizens.
Another issue is that super wealthy folks don't get their money from regular wages. They borrow money from banks using their assets (e.g., stocks) as collateral. They pay back the loan at relatively low rates. The borrowed money is not taxable income.
>That's just because moving from progressive-taxation to a flat-tax reduces how much they pay!
They would be more than willing to be flat taxed at their current rate because it would still save them the hassle and the stress and the uncertainty.
Now, it would likely reduce what they pay eventually, because if you flat taxed the whole populous at their rate there'd be a new government pretty quick, but that's not the point.
> That's just because moving from progressive-taxation to a flat-tax reduces how much they pay!
That's what everybody says but then you look at effective tax rates in real life and the highest ones are paid by people like doctors rather than billionaires because the complicated system is the thing that allows the billionaires to pay less.
Meanwhile you don't need a complicated marginal rate system to get a progressive effective rate curve. Just give everybody a tax credit in a fixed amount and then use the same rate for everyone. Here's your table when you do that:
90 peasants each earn $10 and are taxed 42.5% and receive a $2.25 credit -> $2 per peasant, effective rate 20%
10 nobles each earn $90 and are taxed 42.5% and receive a $2.25 credit -> $36 per noble, effective rate 40%.
These numbers, of course, assume that as in your example you need the average effective rate (by earnings) to be 30%. By comparison, for example, US federal receipts as a percent of GDP have been stable at ~17% of GDP since the end of WWII (and were dramatically lower before that). Your numbers would be more in line with what would happen if both federal and all state taxes (including e.g. property tax) were replaced with this system.
That's not a progressive-tax brackets versus flat-tax thing.
That's a "having different rules for different ways of making money" thing.
> the complicated system is the thing that allows the billionaires to pay less
Something true of a parts is not necessarily true of the whole, and vice-versa. The reason billionaires pay less than we might expect comes from relatively simple factors, not because the tax-code is too complex for poor people to get the same result.
> That's a "having different rules for different ways of making money" thing.
That's the thing which is a consequence of the existing complexity, which in turn is a consequence of trying to do brackets by income.
A flat rate tax is you collect VAT on everything no exceptions, send everyone a check in a fixed amount as the credit to make it progressive no exceptions, and you're done.
Different marginal rates is oops, if you use VAT then rich people have poor people go to the store for them so you have to use income tax and track everybody's income. But some people get income from investments and then it's not realized until they cash out, which allows a bunch of fancy tax dodges, but trying to tax unrealized gains has a bunch of other serious problems like liquidity and valuation. Also, you didn't really mean to tax everyone's retirement savings, so now you need a bunch of stuff like 401(k) to undo the thing you didn't really mean to do, and now you have some more complexity. And it continues like this until you turn around and doctors are paying higher taxes than billionaires because billionaires have more resources to navigate all the complexity.
The numbers for Elbonia are unlike the US but you can use numbers to say all kinds of magical things.
US median income $75,000
top 10% $149000
top 5% $352000
Which is 203000 more, therefore half of the top 10% must earn $101500 less than $149000 to have an average of $149000 which is only $47500 which is 0.6 times median.
If you tax them 40% they have only 0.36 times median left.
See?
top 1% $749000 is 397000 more than the top 5%, therefore 4/5 of the top 5% earns $99250 less than $352000 which is only $252750 which is only about 3 time median.
top 0.1% $3312693 is 2563693 more than the top 1%, therefore 9/10 of the top 1% earns $284854 less than 749000 which is only 464145 which is only about 6 times median.
I don't know where all the money went but it isn't here.
I have no idea what you're trying to demonstrate with all that, it looks like a 1+1=3 Chewbacca Defense.
Moving from a progressive-tax to a flat-tax (with the same total receipts) will lower the tax-burden on one group and raise it on another. You don't even need numbers to understand it: It's the same as how leveling a see-saw will result in one end moving up and one end moving down.
___________
To offer a specific critique:
> top 10% $149000
Correct, $149,000 is the hypothetical income of a single person sitting in-between the bottom 90% and the top 10% of income. This means every single person in the top 10% earns at least $149,000 per year.
> therefore half of the top 10% must earn $101500 less than $149000
No no no, something has gone Very Very Wrong here.
It is literally impossible for anybody in the 10% to be earning less than the lowest-earning member of that group.
The tax brackets are not what make taxes complicated. Knowing how to categorize different types of income is what makes taxes complicated.
The flat tax would not make tax preparation any bit easier. They only thing it would do would be to eliminate progressive taxation. In other words, the rich would pay less. The poor would pay more.
>The flat tax would not make tax preparation any bit easier.
there are many way to 'define' a 'flat' tax. My way would be a fixed sum. Not a fixed rate. ( yes the rich pay the same as poor) This would ofcourse have it's own if/buts but it would eliminate 90%+ complexity.
The ideal situation would be be no income tax and many other forms of taxation.
A fixed sum is impossible. It would have to be so low that everyone could pay it, no matter how poor. It's basically a proposal to eliminate government (meaning anarchy, chaos, and inevitably the rise of some new order that will, of necessity, go back to a more rational system of taxation).
> The flat tax would not make tax preparation any bit easier.
This is absolutely not true in the USA. Income from different sources is taxed differently.
Example: The forms distinguish between short term capital gains, long term capital gains, and e.g., income from government bonds is taxed differently at lower levels of government.
This is exactly correct. That said, I'm quite surprised how many people struggle to understand how progressive tax bands/brackets work. It maybe doesn't help that the (right wing) media often portray them dishonestly (i.e. claiming that a 50% tax band starting at $100k/year means you would pay $50k/year in tax if you earn $100k/year)
Tangentially, the same motivated-disinformation occurs with Social Security.
It's best-understood as an insurance-policy (OASDI is literally named that way) against dying poor and old/orphaned/disabled. With an insurance policy, it's normal for my month's premium to be spent on somebody else's current tragedy, it's normal for me to expect no cash if the Bad Thing never actually happens to me, and it's normal that there's no asset for me to pass on to my heirs.
However wall-street bankers can't make tons of profits competing under that model, so instead they try to trick citizens into misunderstanding what the model is. They want people to think it's a government-managed investment account instead, where every person is filling an individual bucket of "their" money that will someday be tipped back out for them.
With this deception, their job is much easier: They just need to say that they'll be a nicer manager of the accounts than the government is, because they'll give you more choices for managing "your" money. It's dishonest because the two things are fundamentally different in how they work and what they're good for.
The UK has online forms for this, even for businesses, but is moving away from this as part of "Making Tax Digital" - i.e. they are axing paper forms to doing away with the online equivalents as well.
Then again, most people here who have salary only income do not have to fill in a tax return at all - only if they have certain types of income (self-employment, capital gains or investment income) above a threshold.
I've been doing Self Assessment for 25 years. In the first few years it was fill in a colourful paper form which won awards for clear English etc. Nowadays it is online with many details pre-filled in. At the end you can download a .pdf that looks exactly like the paper form or not bother.
Something like ~40% of US individual taxpayers only need to file a form 1040 [1] for their federal tax return.
Another large group will need that plus a small number of other forms, most of which will be easy to fill. For example if they are getting a tax credit to help with health insurance costs there is form for that. That one's easy to fill out because you will be mailed a report that contains the information needed for the form. The report is in a standard format, and the instructions will be of the form copy line X form the report to line Y of the form.
If your income is just salary plus some investment income from investments like mutual funds you don't have enough deductions to be worth itemizing [2], it generally is pretty straightforward.
[2] In the US you have a choice between "itemizing" your deductions, which means you have to list all of them, or taking the "standard" deduction, which is around $15k for a single person and around $30k for a married couple. Around 90% of people take the standard deduction.
They do provide the forms, you simply fill them out. I did that every year without consulting any specialist or extra services. Much easier than in Europe. It was a 20min affair.
The tax system in the US is complicated, you've got different state taxes as well as the federal, for example if your kids go to a different state for school than you live, add that your partner might work in another state, maybe they have different relief taxes for disasters through the year. It might very well be a feature but it is complicated, and the more activities you have, maybe investments, a small business, multiple jobs. It becomes overwhelming for non accountants.
Even the complex cases fit into an overarching tool. Most people in the UK don't submit tax returns because they don't have any income beyond their salary. Even if you do, you then use the tool which asks you a series of questions like "do you have a student loan?" and "did you receive any dividend income?", then you have to fill in some next level detail if those are true. I'm sure there are people with weird tax arrangements that need to work outside of the wizard, but I'd wager it was less than 1 in 1000, and those people tend to have the money to pay for fancy accountants to do it for them.
You also only need to fill in a tax return if you have income (or capital gains) above a threshold. SO having some interest paid on a savings account etc or a small side business or selling an asset at a small profit above what you paid for it does not mean you have to make a tax return.
I'm not sure how it is in the US, but in Canada a huge amount of low-income benefits are directly tied to filing your taxes. Most Canadians experienced this in our college years when we got GST (our VAT) refunds due to being low-income adults.
Canada recently announced that they're going to go for automated tax filing and it turns out the biggest cost may not be implementing it, but that they'd end up having to pay out a lot more in benefits to low income people that don't file.
Basically I only do mine in about 15 minutes, most spend on verifying what I actually paid for things. Because I go over of the basic deduction so I can deduct for workspace, internet and electronic equipment. But the workspace is going away so probably won't bother after this year.
Because it is (or was it the time this article was written) against the law. The company that owned the tax preparation software lobby to Congress to pass a law requiring that the IRS not provide a free and easy way for people to submit their taxes.
Sometimes I think the most exceptional thing about the USA is exceptionalism.
Solutions to problems that are solved elsewhere are pushed back against, because "The USA is fundamentally different".
Other countries have states too. The UK even has a country with an entirely different legal system (Scots Law), but we still make our collection of income tax system simple.
A "complicated tax system" (if that is the root cause) is not something that is impossible to change. It is within the gift of the government(s) to change that.
The lack of appetite for change is the result of decades of lobbying for the status quo to continue.
A 1040 form, while intimidating looking, is trivial to fill out. Once you've done it a couple times, it takes about 5 minutes.
The only arcane bit is the law. The tax prep software knows which forms to use for which financial detail.
If the law were written clearly, there would be no need at all for any special software, you could fill out a couple csv files and send an email...
Even without the law, you are right, the actual flow of the tax prep software, for most people, is something a 16 year old could probably cobble together in an afternoon or two... however the problem then becomes how to provide a public service at low cost (to cover hosting/bandwidth costs) while govt funds are explicitly forbade to be used.
To me the solution is obvious - a third party non govt player that receives specific allotment of funding, no questions asked. However, see the rampant issues with lobbyists mentioned in the article...
It's become worse since 2017 when they changed the 1040 to make it "shorter." All they did was move everything to different forms so now it's an insane process of shuffling numbers back and forth across many forms.
"tax prep" isn't something I've had to ever think about for the UK system. I don't have to buy software, I don't have to pay anyone. I get my wage, it has my taxes taken out. That's it. I don't need to keep receipts, I don't need to work out how much mortgage interest I've paid, etc.
My individual situation is calculated, by the tax authority and rolled into a "Tax code" which acts as the personal allowance. This then feeds into payroll which pay you net of tax.
If at the end of the year, the tax authority (not you, this is automatic without a form being filled in) spots an over or under payment, they adjust your tax code for the next year to recoup or refund the difference. No cheques in the post, no forms to fill in. Just automatically happening in the background.
Meanwhile for the US, I need to fill in 2555, 1040, and other forms. These aren't "5 minutes", they're slow, and more importantly error-prone, as they get you to add up different numbers rather than just asking for the information needed.
No human should ever have to answer the series of questions ( this is legit, from the current 1040 ) :
24 Add lines 22 and 23. This is your total tax
Where Line 22 is:
22 Subtract line 21 from line 18. If zero or less, enter -0-
Line 21 is of course:
21 Add lines 19 and 20
And 18 is:
18 Add lines 16 and 17
Where 17 is:
17 Amount from Schedule 2, line 3
Where that is an entirely different form.
The only purpose I can tell for this ridiculousness is to give scope for people to make mistakes.
A form should collect raw information, not put the burden of calculation shouldn't be on the form-filler in a world where computers exist.
The data is already on the form. What purpose can that solve except opening up a possibility for someone to accidentally commit tax fraud?
You're missing the point suggesting it should be "a couple of CSV files". No, it shouldn't be any filing at all.
Demand change, demand simplification of the tax system, and demand zero-filing solutions for regular employees.
> Meanwhile for the US, I need to fill in 2555, 1040, and other forms. These aren't "5 minutes", they're slow, and more importantly error-prone, as they get you to add up different numbers rather than just asking for the information needed.
For the many forms, yes of course it takes longer. However, from the W2 to the form, if you are familiar with both, it is many steps to be sure, but the process itself doesn't take long.
I don't mean to hold up the 1040 as some shining example of how to write a form.
Merely, the steps look involved, but usually boil down to several of the same number in multiple boxes, and a couple additions/subtractions. If you do it purely by hand, there is a high chance for clerical error, yes, with automation as simple as a calculator, it's much simpler.
You usually get the 1040 as part of the "preview" of the tax prep software. When you compare the actual steps involved in the 1040 vs the overly long, overcomplicated process in the tax software, it's obvious that there is a large amount of fluff involved.
Sure, there are some credits it might remember that you might not, but that's about the only reason I would think tax prep software is better here... however this could be accomplished by something as simple as a checklist provided by the govt...and if you are paranoid you could employ a lawyer to double check that every option has been explored (how do you know the tax prep software know every credit from this current year? You don't, so, what exactly are you paying for?)
We got pre-calculated returns as an alternative in the early 90's, by the time I got my first real job in the early 00's everyone used the pre-calculated one and just made changes as necessary. The first years I got my tax return in the mail and I think a few years I had to mail back a signed copy, but these days everything is digital and if you don't have to make any changes you don't have to do anything at all.
Back then you also had to physically deliver your tax deduction card to your employer so they could deduct tax correctly, but these days that is also digital and salary systems just fetches the current deduction card before running salary jobs every month.
If you want to understand the first, take McDonalds - you probably have one and don't think it's that bad? Imagine everything on the menu is either 10 times sweeter (sickening), or made with wilted products on the cusp of expiration, and that's "standard" food.
It's so bad, many Americans hate anything "healthy" because any time they are exposed to it, it's not much better than pigs swill. So there are many who will only eat meat, because that is harder to make taste poorly, despite being even more disease riddled (there are almost no standards for meat inspection).
So then, you are constantly sick, low energy.
And then education - suffice it to say there are many communities where it is seen as "reasonable" to believe in nonsense like "flat earth", and many struggle with basic things like addition. It's a wonder we aren't illiterate too... I suppose it's too useful to be able to read about products to buy them, so we can at least all read the adverts...(for now)
I know French people who live near the Swiss border and who file their tax returns in a matter of minutes because all the information is pre-filled via their employer's income statement and their bank.
They are two different countries, and Switzerland is not a member of the EU.
When French bureaucracy is simpler and more efficient than your tax collection system, you have a problem.
They were rolling out a free service over the past few years that was getting solid reviews and plenty of people used[0][1]. One of the top priorities[2] of the Trump administration and DOGE was to prevent that and it has been since shut down[3] and partly open sourced[4].
Tax prep software exists for people with more complicated tax situations and people who are unwilling to add and subtract a couple of numbers. The 1040 form is not complicated and anyone can use it to file their taxes for free.
> I never understood why the Revenue can't provide a set of simple online forms for tax returns like India does.
Did you read the article? The TL;DR summary is that the US government has proposed doing this in the past, but has been lobbied against it by companies that seek to profit from software to help prepare tax returns.
the UK seems to be going in this same bad direction now "As part of our journey to modernise and digitise our filing routes, all accounts must be filed using commercial software from 1 April 2027."
https://changestoukcompanylaw.campaign.gov.uk/changes-to-acc...
you used to be able to do this yourself on the gov website for free
Tell me about it! The bottom tier subscription services are also subtly crippled to make filing MTD tax returns difficult. eg. Xero's lowest tier doesn't let you easily add cash payments (without jumping through hoops for each payment).
Eh, that’s companies rather than individuals, and while it’s still objectionable it’s not quite in the same league.
If you’re running a company you probably already have an accountant, and they’re probably already using one of those pieces of software. Or you’re using something like Xero, which is already on the list.
What? I just googled, and found it is actually a real thing. Holy molly! Has Amazon become a federal system for distribution of money and goods? What next? coupons for burgers, Netflix credit?
In the US it's legal for the person filing the taxes on behalf of another person to collect the refund for them.
This allows tax prep companies to give people 'instant refunds' (essentially loans for the expected refund amount) so people don't have to wait weeks for the IRS to send them a check in the mail.
The IRS only pays out via check or direct deposit but the company who did your taxes can pay out in cash, gold, or pokemon cards if they want to.
It's also awesome how the tax prep companies can advertise the cost as nothing, because you'll make it up in your refund. And they'll happily let you pay for their service using the refund.
I think its usually like a person is due to receive a $1,000 refund and the company they did their taxes through will give them the offer to immediately get an Amazon gift card for $800 instead of waiting for fed and state refunds to hit their bank accounts.
AMEN! How is that taxing is easy, computed by govt yet people and rich people keep evading taxes, not showing taxes, finding workarounds through other orgs to reduce tax profile but as an individual you have so many restrictions
It seems their business model is more existentially challenged by LLMs these days. I’m waiting for the regulations preventing AI being used for taxes and legal counsel
Taxes are actually not a bad problem for AI, because a lot of the final calculations can be easily verified/sanity checked. The AI won't be able to get away with any math errors, the issues you'll likely see are incorrect categorisation of income or suboptimal deductions. The substeps like categorisation shouldn't be too difficult to manually verify
The problem is if you need to verify everything you might as well do it yourself.
I'm not convinced an AI will ever know how to distinguish a personal and business expense from a CSV dump of your credit card too.
If you're going to go down the rabbit hole of creating a CSV, you can already parse and categorize it pretty easily without AI. I've built and have been using https://github.com/nickjj/plutus for a bit now and I've gotten quarterly taxes down to less than 10 minutes.
I agree, tax prep will probably be done by AI soon, for better or worse.
On the other hand, there's a broader business model here: lobbying to obfuscate mandatory government paperwork so that a 3rd party service is practically a requirement. It's not difficult to see AI companies expanding into that industry.
this seems to fall into the category of Intuit offering AI (RAG/MCP + tuned base model) and not people directly going to chatgpt for half-baked advice (and still needing to fill out all the forms and perform hand calculations themselves)?
They are not as harmful as some other corporations, but for some weird reason I hate such parasites on our society much more than some bigger offenders. And I'm not even from USA :) . How do you all tolerate this?
Few people give a crap because a two figure sum for tax prep once a year is just about the smallest thorn the government and government adjacent or intertwined industries put in the side of the average person even if it's arguably less justified than some of the other ones.
Intuit emailed me stating that Turbo Tax 2025 will not install on a PC running Windows:
"We’re reaching out to provide an update on TurboTax Desktop software for tax year 2025. After October 14, 2025, Microsoft will no longer provide software updates, technical assistance, or security fixes for Windows 10 operating system. Because security is a top priority for us, TurboTax Desktop software for tax year 2025 onwards will not be compatible with Windows 10 operating system.
To use TurboTax Desktop software for tax year 2025, your computer will need to run on Microsoft Windows 11 operating system. You can also consider switching to TurboTax Online, which will work on any supported browser (available December 2025)."
I wonder why there has never been open source tax software. It seems exactly the kind of thing the community would be good at. I imagine it would be hard for very complex taxes. But for the 60% that have simple taxes, I don’t think it should be unmanageable.
Is it a matter of liability? Like I could definitely see a big issue with mistakes — even if it was just operator error.
Fast moving regulations and legislation. You need both a legal and developer team, at least to follow and implement things as soon as they become the law.
Even the revision of yearly variables is a considerable task.
> The complicated tax code keeps many lawyers and accountants in business.
At least, some of the complications in these are not intentional, but result of centuries old evolution of these systems.
Maritime shipping uses centuries old systems to handle costs in shipping accidents for example. I forgot the exact name of the system, but while the method is extremely fair, it's equally complicated. The whole premise stems from "This ship has sailed because you wanted me to carry your cargo", and becomes something mind boggling.
I'm sure there are some steps taken to keep people busy, but chalking up everything to it is unfair and wrong.
Fair points, but there is hostility to fixing a lot of those historical rules for the same reasons. Long-standing business practices is another can of worms, especially ones as international as shipping.
Of course, this is a very complicated matter. I just wanted to point out that the issue has two sides, and it's not clear where a side ends and the other one starts.
I have heard and seen enough horror stories about employee pushback on different scales against automation and simplification.
No, government builds all kinds of IT systems for a wide range of sensitive functions, and they certainly have the means to build or fund an open source tax filing system.
The reason they don’t is twofold: A) massive corporate interests lobby the government to ensure projects like this don’t happen, and B) building functional infrastructure for the people goes against certain political narratives that government is useless and wasteful. If you campaign on the idea that government is inept and wasteful, you’re not likely to support projects that undermine your platform.
Unfortunately TT is [still] a must for expats. While my new home country makes things extraordinarily simple, not only for the free online filing, but also for an amazing assistance one could get from the local tax services (first year I reached out to them, in the office, they had their expat expert fill out the taxes online, in my account, in front of me, so I could learn on doing them on my own, from then on), filing to avoid double taxation, with uncle Sam, is stil a PITA
Americans are the proverbial frogs in the pot. They've been ratcheting up the heat over the last 30 years, the first signs of danger are well past, now its 300mm people being held captive by abusive leaders and insanely greedy profiteers.
This entire story exemplifies everything wrong with the USA and its form of corporate run government. Socialize the risks, privatize the profits and foremost, let the foxes not only guard the henhouse, give it to them!
World, if you're listening. We need a pepperoni pizza.
I think it would be great to just have the IRS website list all reported income. Free automated filing is amazing, but if that is too large of a political battle just making this income information easily accessible would be a giant first step.
In Poland since 3-4 years tax form for regular employees is automatically filled and submitted. Before then many NGOs filled them for you (directly or indirectly) for 1% of tax (I think avoiding loss of 1% motivated govt to make this automated system).
Reminder: FreeTaxUSA is a great alternative, I've been using it to file my taxes the last 3 years and plan to use it if I can this year. My situation is made harder this year by my wife starting a business.
Agreed, it's not quite as good as TurboTax, I'd say for my use it is 80-90% as good. But it is kind of important to me to avoid TurboTax because of the lobbying they do to keep us from just having the IRS tell us what we owe and be done with it.
I looked this year and the site went nowhere. But now seems to be up. Not sure what happened.
But I just went through the eligibility steps and it requires id.me verification! Big nope. Mailing a paper form does not. Of course Uncle Sam figured a way to fuck it up.
Around 2018, my accountant retired and sold his business to some other firm. That year, the other firm had some newbie cpa do my taxes. If I had blindly gone with his effort, I would have had to pay thousands of dollars. The problem is, he made a huge mistake because he didn't listen to what I had told him regarding a step up cost basis on inherited stocks. I fired them the instant I saw that issue. Then I was stuck with nobody to do my taxes! I used TurboTax and got it done myself and actually received a small refund that year. And no, nothing was done fraudulently, it's just that I knew the details of our situation far better than any cpa who refused to listen to what I told him or was too "green" to know what I was talking about (unforgivable, imho). I've used TurboTax ever since then. Yes, I know it sucks in many ways, but the thing is, they bailed me out and saved me thousands of dollars over the years for hundreds of dollars in fees.
Taxes are free to file. Just fill out the form(s) and mail it in. I find it way easier than using crap software. No logins, no ads, no spying, no losing my progress. There’s literally instructions for every box on the form.
The problem is how ridiculously bloated and inefficient the US tax system is. Companies see that as a possibility for exploitation and wet their shirts with drool.
Precisely why I built https://freetofile.com (it’s a simple static site with React for internationalization that automatically renders in Spanish, Chinese, Haitian Creole, or English depending on browser settings). It’s shocking and depressing how many low income people don’t know they don’t need to spend $100-200 to file their taxes.
I want to blanket my area (well the whole country really but baby steps…) in signs with the URL during tax season. I really do loathe the entire industry at this point due to their gross practices around free filing. Some offer “free” online filing but deceptively upsell until they squeeze some money out of the customer. So I want to make any little push back I can against these companies.
Not from the US, but I did see a missing word in the footer:
> There was a recent effort by the U.S. government *to* create a no cost,
One thing you will be up against is this mind set that TurboTax is saving you money. One way to dismantle this cognitive dissonance is to compliment your user with the option of choice. Even if the choice is obvious positioning yourself this way empowers your target user to make the right one:
Freefile helps ensure you keep your entire refund unlike TurboTax and other filing services which takes money from your refund. This tax season the choice is yours.
Dude, thank you. This is exactly what I've been looking for.
great job. I used to use turbotax here in canada, until i figure it out that i could just fill it somewherelse for free.
GenuTax is the free software I used for Canadian taxes
Wealthsimple Tax is free too, and pretty good for simple use cases.
Who's spending that much on their taxes? I'm not low income by any means and I've not paid a single dollar to HR Block who does my taxes every year.
My mom spends easily that much with her tax preparer who is an independent person who tries to dissuade usage of software like TurboTax. My sister spends about $100 to file, and they have simple W-2 stuff. I know several folks at my church who spend $50-$75 on TurboTax or something similar every year.
I just spent like $200 to file mine with TurboTax only because I have a very simple 1099-K/Schedule C since my wife sells things on Etsy. I know Schedule C can range from my simple setup to absolutely ridiculous, so I don't totally grudge it. But at the same time, there are a lot of small business owners where that's a big chunk of change for them.
At Costco TurboTax with Business (or something like that) costs around $79.99 + tax. It has Schedule C [0]. Next time you want to buy TurboTax maybe buy it from Costco - $200 for your usage scenario looks like over-payment.
[0] It also has other things such as RSUs, stock sales, real estate, cash distributions from businesses, etc... For personal taxes I do not see why anyone would pay a tax accountant as opposed to using TurboTax.
[Edited some formatting tags]
That often doesn't include their in-app purchases per-state for electronic filing.
Thanks, I did not know that - I live in a state with no income tax.
Haven't filed mine yet for 2024, I did a bunch of side gig work eg. driving door dash, uber eats, donating plasma... been put off by that (having to track every mile). Also I usually end up owing too.
I think the worst thing I had to do was write a FIFO calculator to go through my thousands of tiny crypto transactions back in early 2020s thankfully I don't screw around with that anymore (especially when I got rekt and lost $4K)
No semen?
Don't you need to have qualifications like have a degree
Also while I have intellect, I am defective like anxiety, bad genes (or maybe it's not genes but environment anyway I'm not who I want to be)
fight eugenics: lie.
Bravo, this is, quite possibly, the most morally chaotic (in the alignment chart context, [0]) comment I've seen on hacker news, much less in 3 words.
Off the top of my head, this can be a topic of discussion in Nash Equilibria/Tragedy of the Commons/Game Theory just from an economic lens.
I don't have any formal education in these fields, but I'm sure there are fields in general philosophy ("Given presumably others too have lied and done it, are genes of anxious liars actually better than that of an anxious honest person? But if they go ahead, don't they become a liar? Maybe their conscience makes them still a better person?") and medicine too ("Is honesty even inheritable? How significantly inheritable is anxiety? Does it even matter? - Because for example apparently almost 30% of all humans have a depressive episode. Maybe most humans already have the genes but it's just not expressed?)
I'm rambling a bit, but I just wanted to show how much 3 words could be expanded if someone wanted to analyse it thoroughly. Really love the comment.
(I don't personally condone lying but I do appreciate a good philosophical dilemma and discussion.)
0 - https://en.wikipedia.org/wiki/Alignment_(Dungeons_%26_Dragon...
It was considered an uncharitable donation.
As someone whose employer uses a broker that doesn't do cost basis correctly for RSUs, I was very surprised TurboTax was able to import the supplement and adjust it correctly for me.
Even without RSUs, I usually have hundreds of transactions across multiple brokers.
> whose employer uses a broker that doesn't do cost basis correctly for RSUs, I was very surprised TurboTax was able to import the supplement and adjust it correctly for me.
Approximately zero brokers do this, because RSU are still noncovered shares.
> Even without RSUs, I usually have hundreds of transactions across multiple brokers.
As a corollary, "hundreds of transactions" of covered shares collapsed into one summary line.
RSU is a pain though to enter. Technically you can enter a summary line and send in a 1099 to the IRS (last year was the first year that could be done electronically, so, fingers crossed it actually works correctly).
Etrade has always reported the correct cost basis for my RSUs. They do report an incorrect basis plus supplement for ESPP shares though.
Reported to you, of reported to the IRS? As in if you just push through without a 8949 does the IRS come after you with a CP-2000 a few years later with a letter assuming 0 cost basis? Or does the IRS already have correct numbers?
I do consulting on the side and trade crypto and I pay my accountant around $1000 a year for taxes and payroll. The way I have it structured is that it just qualifies as a business expense, so I can get my wife and I'd personal taxes done as part of the deal.
I suspect many others on HN have something similar setup.
Go look at the financial results of H&R Block and tell me your guess of how many people are spending a ton of money getting taxes done. (Intuit too, but we might not know how much is TT vs QuickBooks).
And I suspect the #1 most common tax form H&R does for retail clients is the 1040EZ, the one that should take anyone with a $2 calculator a total of 10 minutes to get through. For the privilege of having H&R do it for you, you get to pay about $75 and they'll generously loan you your own few thousand dollar (due to EITC) refund on the spot, at an effective APR of like 7,000%
Maybe their fee is deducted from your refund?
Or they're over 65 or something?
Did you not read the article, at all?
There's certain cases, like deducting student loan interest paid, which these companies gate behind paid versions. So yes if you have extremely simple taxes you can usually file for free but even some really basic deductions are gated.
Even freetaxusa charges for state taxes IIRC. Some of the cheaper ones surprise you with fees as soon as you add capital gains, crypto, or anything more interesting than W2 income.
I think the state fee for freetaxusa is something like $30 IIRC. It was small enough where I didn't even bother looking into whether it goes to the state or the software vendor. That's the cost of a casual lunch for one at 2025 prices.
Its half that, $15.
I think it depends on the state. Virginia for instance used to have a free government run tax filing system, but the tax prep industry got a rep elected who killed it off and punished the state for its insolence with one of the highest e-file rates in the country.
You haven't realized that they have been taking their payment from your refund all these years? They are a business not a charity.
They truly do simple 1040s for free, even though they are indeed not a charity.
I mean I've paid like $18 to efile my state taxes but they haven't taken any of my refund and I get it direct deposited from the IRS.
What tax complexities exist for low income people that would cause $200 fees?
Sell some stuff on Etsy and get payouts on social media. As soon as you start adding in business expenses, it inflates pretty quickly.
I've often taken on a side project or two a year for software dev/consulting and it usually winds up being $200-350 to have my taxes done. If I only have W2 income, I'll do the electronic version of TurboTax though. I also do 0 deductions and have extra out of each check taken out just in case, I don't set aside or do quarterly payments and usually get a decent return back.
I pay my accountant $300 a year to do my taxes. It was really a shock to find out that TurboTax was completely ignorant of my tax situation and was costing me thousands of dollars a year.
Refusing connections from VPNs is a baby step in the wrong direction.
Taxes are crazy anyhow. The government won't tell me how much I owe, but if I'm incompetent enough at figuring out the number, suddenly they both have a clear idea of what I owe and also I'm now in trouble. Why doesn't the government just tell me what I owe, and if I think they've calculated incorrectly, only then do I do my own filing or hire a CPA or whatever else?
> Why doesn't the government just tell me what I owe, and if I think they've calculated incorrectly, only then do I do my own filing or hire a CPA or whatever else?
This is how it's done in most other countries.
How do other countries find out income and deductions for small businesses? For example: the cost of replacing the blade on a lawn mower. For a small business doing gardening that is a cost that needs to be deducted from their income. How would the government know to deduct this cost from the revenue and calculate out the tax?
Businesses typically do need to file. Individuals may have to report some of the deductables they want to claim.
E.g. in Finland employers deduct taxes directly from salaries. Also some capital gains taxes are directly deducted by banks etc, or at least the income is reported to the tax office. Yearly the tax office sends a prefilled report based on these. If you are fine with it, you don't have to do anything. If you want to add e.g. deductions, you add them on the tax office's website and it calculates the new report.
I've been getting taxable incomes for 25 years or so and I have never had to do any tax reporting.
The dumb thing about your Finland example vs the US is that all of that is also done in the US other than the prefilling.
Nit - as far as I know in US this standard deduction applies only to overall household income. It does not apply to Schedule C (aka small business tax return form). For Schedule C you really have to itemize what you spend your money on and keep receipts for some time in case of an audit.
This comment conflates several things and risks confusing others.
Schedule C (self-employment), which is a schedule you attach to your personal income tax return vs a business tax return (different depending on the type of business and what they're reporting) filed by the business.
Itemizing deductions (Schedule A) vs reporting/deducting expenses as part of a Schedule C as required by the IRS.
I mean, the grandparent also says that in Finland small businesses need to file
They don’t. You are liable for the full tax on earnings. It’s up to you to record any deductions or take credits to reduce it.
That's not a problem. You won't get into trouble for not declaring a deduction (in my jurisdiction, anyway).
They don't know your business income either of course and you do have to declare that, but most people have only income as an employee and they do know that figure, so most people don't need to "file" anything here. It's all automatic.
Over here it functions as follows:
When you're buying an item you declare you need an invoice on it and punch in your tax id.
Later, when you're filling your monthly taxes, you include that invoice in an XML file (plenty of generators available along with the free government-issued one), sign it with your digital ID and send that to the Ministry of Finance servers (MF servers for short). The MF servers then compare your entry to what all the people that sold you stuff entered.
This exists largely to prevent VAT manipulation, but at the same time gives all involved parties a clear, regular indicator that everything is fine in terms of taxes.
I'm a contractor and do this little dance every month using an accounting SaaS.
The overwhelming majority of any country takes a standard deduction and has no need for itemization of things the government would not know.
If you don't fall in that bucket or run a business, you tell them those things and send back the corrections form.
That's a special case and in most countries people are regular employees.
Gemini says 90% of the American workforce are employees.
The United States is not a successful country in that it does things to benefit citizens.
It’s an extremely successful business in that it does things to ensure more profit can be made.
Healthcare, education, defence contracts, tax collection, etc etc.
The goal is to make more money for some company.
That's because it's a plutocracy. Money is literally considered speech here, which is insane.
Yes, and that corporations have the same rights as people, but can’t face the same consequences.
The fines for wrongdoing are so tiny the incentives are to always do bad stuff and just pay the fines - that’s how to maximize profit and there’s no downside.
Except when it comes time to speak in private with other people, speak for other people so they may obtain privacy, speak for sex work, speak for drugs, speak at banks, speak to people in other countries, refuse to speak to government, etc. Then it's very serious Money which has Very Important Regulations. Regulations which always seem to burden regular individuals while facilitating business as usual for those with power who can grease the system.
FWIW I think the "money is speech" is actually a bit of a distraction. What we really need is wholesale reform to corporate/LLC law. Corpos are not mere groups of people exercising their individual rights, but government-created liability shields. Thus it makes perfect sense to regulate them to prevent obvious mechanisms of harm that leave others holding the bag. The vaunted "man in the arena" needing minimal regulation can actually get into that arena with a sole proprietorship or general partnership. (which is exactly where most small businesses actually are, regardless of any LLC filings)
What, never heard the term "money talks" before?
This is what people like Grover Norquist fought hard to stop. They want every part of the tax collecting/paying process as hard as possible:
https://priceonomics.com/the-stanford-professor-who-fought-t...
This is a meme, but it’s not true. The fact is taxes are 1. Subjective 2. Based on your real world activity outside your W2.
So the IRS has correlative algorithms to signal an audit if something looks strange. But besides that, you are evaluating your real world activity and classifying it according to the forms they have.
This is why accountants and lawyers are useful in tax. They can help you interpret the tax code and argue to the IRS your interpretation,
This is true in the general case, but it does miss the fact that a huge percentage of people could have their taxes done automatically by data that the IRS has
Does the IRS know:
- how much of the year your wife are kids are living with you? - whether you took college courses? - how much you put into your IRA? - which purchases count as medical expenses? - the cost basis of the stock you sold?
> how much of the year your wife are kids are living with you?
They can make a likely guess (the full year), and you tell them if they're wrong.
> whether you took college courses?
Yes, your college files Form 1098-T to tell the IRS this.
> how much you put into your IRA?
Yes, your IRA custodian (your bank) files Form 5498 to tell the IRS this.
> which purchases count as medical expenses?
Very few people spend enough on medical expenses to take a deduction for them. They have to exceed 7.5% of your AGI.
> the cost basis of the stock you sold?
Yes, your brokerage files Form 1099-B to tell the IRS this. There are only a few rare cases where they won't be able to report a cost basis.
Agree with all of them except the kids. That was the big reason I said "huge percentage" instead of something like "overwhelming majority", because I have a sneaking suspicion the IRS doesn't know anything about your kids at all. So I'm guessing child tax credit isn't automatically calculable right now.
Let's assume you're right that they don't have a simple table that shows parentage of every SSN, sounds plausible that they wouldn't at least to start, but on the other hand, (for people who don't add or remove spouses or kids from their household) it's arguably VERY common for kids to persist with the same parent(s) from one year to the next.
I don't think anyone is saying "All taxes should be automatically calculated to the final numbers" -- just that for instance, when I filed last year with a spouse and 2 kids, a default calculation could be done this year that assumes an unchanged household.
And anyway, just as TurboTax does, the IRS could maintain a simple fact database for you for you to sign in and indicate what SSNs are part of your household, with the bonus that it would detect a duplicate claim for the same kid up front and show you that someone else (e.g. your ex) is claiming them and that you should get them to remove them to avoid both your returns being incorrect. The complexity for a taxpayer of signing in to IRS to manage household members, address, etc. with IRS is an order of magnitude less than that of tax prep they have to do today.
I agree, definitely. Just in this specific subthread here I'm addressing the question "does the IRS know...?"
Yes they receive these forms. Do they put them in a database with your TIN in time to calculate your tax? I’m not sure.
It seems their real use is to provide a paper trail for audit should they choose to.
Why not use all those forms and prefill my tax form for me ?
If I disagree, I can add/remove/update it. If I agree, I just file
Asking me to collect those documents and reports the different numbers into a form, is not efficient, error prone and time/money consuming.
Even in this case the IRS could pre-fill everything it knows and let you spend 5 minutes adding any details they missed. For the majority of people it would be "open up mytaxreturn.irs.gov, verify that everything looks correct, hit yes and be done".
The IRS knows enough before tax time to auto-file about 90% of American's returns. Because 90% of people only have a W2, maybe a mortgage (which they know), and take the standard deduction.
The could send 100% of people a bill that you either pay or file tax forms to replace.
Those things matter for less than half the population.
If you don’t care about deductions you can fill out a 2 page 1040 with your W2. As they calculated for you.
but people do care and so they are willing to pay $60 for tax help
About 80% of filers take the standard deduction.
You’re referring to itemizing deductions. But you still qualify for income deductions like IRA and credits like child without itemizing.
With the way these conversations often go back and forth, I sometimes wonder how many people have actually done their own taxes by hand with the official forms, vs have only ever used some program or service.
Not their problem, it’s your responsibility to record deductions.
And, if they don't, do you want them to know?
If your taxes are simple enough to fall under the 1040-ez as most Americans are, the IRS does know your exact tax responsibility. I have personally received a letter from the IRS informing me that I'd filed wrong, and gave me the actual correct values. Many Americans have.
Just because you personally disagree with something doesn't mean that it's a ridiculous lie.
There's no such thing as a 1040-ez.
There used to be, they got rid of it around a decade ago. I think I remember the reasoning was the 1040 was simplified at the same time.
Edit: Yep, 2017 was the last year the 1040ez was around, and the regular 1040 went from 74 lines that year to 18 the following year. The 1040ez for 2017 was 12 lines.
> Why doesn't the government just tell me what I owe[?]
Mostly because of:
> TurboTax’s 20-year fight to stop Americans from filing taxes for free
Income tax was supposed to end after we recovered from the Civil War anyhow, so it's, by any other definition applied to any corp or business, unjust theft (like autobilling someone after they paid off their loan).
So of course it doesn't work. Also plausible deniability, if you overpay, rarely will the gov give you back what you give them, and if they do, it's months afterwards.
The case you outlined is for employed people - in this case the income and deductions are very clear and relatively easy for government to find out and calculate the tax.
How would the government be able to know the income and deductions for small businesses? And in the USA at least lots of people have small businesses (cleaning businesses, landscaping, sub-contracting in construction industry, mowing lawns, consulting gigs, Uber/Lyft drivers, etc...)
They wouldn't, those people would have to file like usual. But the vast majority of filers (something like 90%) only have forms that the government already has, and takes a standard deduction.
> How would the government be able to know the income and deductions for small businesses
Determine the amount of average deductions for small businesses, benchmark against however much money you want to extract from small businesses, then give all small businesses a blanket standard deduction.
I personally have a problem with "benchmark against however much money you want to extract from small businesses"... So a hard NO from me.
Looks like you've had a bit too much to think!
The Canadian government recently announced automated tax filing. I assume that you still file your exemptions because there is no way (I hope) they know what charities I am donating to!
The tax filing industry is against it, essentially. Various attempts by the IRS to move in this direction have been stopped.
There used to be a libertarian wing that thought paying taxes should be a little painful so people wouldn't vote for more taxes, but I've not heard anyone say that since the bush era.
The Grover Norquist folks in the RNC were not libertarians.
My favorite part about Norquist and the starve the beast folks is the utter hypocrisy of their silence in the face of Trump's tariffs.
So much for the "drown the government in the bathtub" talk - turns out it was always just about the rich not paying more.
Pretty wild to me that we're at the point where even Penn Gillette recognizes that modern American Libertarianism is ultimately just about rich white men who want to do whatever they want with no consequences
It’s not really ironic, he just broke with the LP per se. He’s given interviews with Reason where he says his core beliefs haven’t really changed.
Norquist has always been a partisan hack. To his credit he was against the Iraq war when that was unpopular with Republicans, but he’s acquitted himself especially poorly in the era of Trump.
That said he’s not and never was a libertarian.
This is, among other things, how Republicans make ordinary people hate the government.
> and also I'm now in trouble
I know people who mess it up every year and the government just sends the forms back corrected. In fact they started treating the government like a tax prep service. Do people actually get in trouble for this?
> Do people actually get in trouble for this?
Unless they willingly and provingly try to grift IRS on a continuous basis, no, people don't get in trouble for this.
If you mess something up or underpay on your taxes, and if (or when) IRS detects it, they will send you a letter explaining their concerns and provide you with remediation options (as well as an opportunity to dispute, of course). The remediation options provided by IRS typically include both "pay it now and we will go away as if it never happened" and "talk to us, and we can work out a payment plan with you (in case you aren't able to cover at the moment)".
So no, IRS isn't some boogeyman that is gonna get you in trouble over a mistake. If they catch a mistake, they will work with you to remediate it, and their terms are typically extremely reasonable, and have zero negative consequences for utilizing them (unless you are, beyond any reasonable doubt, trying to defraud them or refuse to cooperate entirely).
Eh the problem is when they dont catch mistakes for several years, and then come after you for like 80 grand at once, and then when you cant pay it threaten to seize your assets
When you cant pay it, they will set up a payment plan over years (maybe a decade) to pay it off.
What happens if the submitted numbers are too high instead of too low?
Since nobody gave you the meaningful answer:
It's republicans. Republicans are against making taxes simpler to individuals because, and they have explicitly said this, they want taxes to hurt so that Americans will be more likely to vote for tax reduction.
I'm sure some democrats get a few thousand from Intuit somewhere but at the end of the day, it's republicans voting down things like free file and the government's digital initiatives and refusing to let the US gov do your taxes for you.
It's frustrating how often people in the US blame "the government" instead of the very specific subset of that government that they keep voting for that objectively and openly and loudly do things that harm them.
The problem is, there's a history of doing the exact opposite of what they claim to want to do. Plenty of Republicans have expressed a desire to make the tax code simpler, only to promptly add to the complexity.
More recently, Elon Musk was publicly proposing a mobile app for making filing taxes easier (See https://www.fox26houston.com/news/doge-tax-filing-app), but then once part of the Trump administration, they happily killed Direct File, a program to do exactly that.
> Taxes are crazy, anyhow...
Outside the Overton Window, why are individuals taxed rather than businesses?
There was a time when the government had no business knowing the financial affairs of the citizens, but then some kings got the idea that they could tax everyone to pay for their wars. Nowadays we assume tax paying is good and socially responsible, with only tax-dodging scum not wanting to pay their taxes.
Due to tax havens and whatnot, for a company to compete and be successful, some tax avoidance is needed. So we have every corporation opting out of paying taxes. Consequently, taxation is for the citizens, not the corporations.
Companies have accountants and bookkeepers. Individuals don't unless they are seriously wealthy. As I see it, it would make much more sense to just tax companies and not individuals. Think of the amount of time that would be saved, particularly if VAT is a tax, which it isn't in America.
I have to say that the American tax system sounds like hell, compared to what we have in the UK.
> why are individuals taxed rather than businesses?
The big question to me is, why do we tax production rather than consumption? We shouldn't have income taxes at all. We should have sales taxes. Make basic necessities like food exempt.
I've always heard that consumption taxes are regressive because poor people consume 100%+ of their income while rich people consume e.g. 1% of their income.
I'm not sure it's true that rich people, on average, consume such a small percentage of their income. Think of all the rich people who end up having to declare bankruptcy--because they've spent so much on consumption that they've used up all their riches.
It's true, though, that on average, rich people consume less of their income than poor people, because they save or invest a portion of it instead, simply because they can. That's a good thing. Our current tax system discourages people from saving and investing, and encourages them to consume. Then something bad happens and we wonder why there's nothing saved to tide us over.
Exempting basic necessities from sales tax is how you prevent it from putting too much of a burden on poor people; most of what they consume is going to be basic necessities (or at least it should be, if they're rational), so it wouldn't be taxed.
Bad logic, if u dont consume then who cares if u have money.
The people who don't have money because you have it and won't spend it. The dragon's hoard is bad for everyone (including the dragon, ultimately).
You need to start thinking about the economy in terms of goods and services instead of money. Hoarded money is dead money, it's actually anti inflationary. If there are 100 apples and everyone can afford 1 apple except for a rich person who can buy it all, it's actually a good thing that the rich person doesnt spend their money to buy the apples, thus driving up the price and depleting supply.
You are conflating macro- and micro- economics a bit in that statement. Entities accumulating wealth incrementing towards infinity contributes to inflation, e.g. My family can spend 1 trillion to out-bid my competitor for ownership of a villa worth 1 billion for bragging rights.
Commodity pricing may contribute to inflation over time. But commodity prices go down, whereas currency tends to move in one direction until the civilization backing it collapses, or the specie changes.
I'm more talking about how hoarded money has no effect until its spent, at which point the consumption tax kicks in. I.e. it's not really a regressive tax because you are taxed based on how you live, not how you can live.
>who cares
The people who maintain the infrastructure which enables you to have that money.
Because that would incentivize sitting on money, and the economy works better when people spend money.
> that would incentivize sitting on money
No, it would incentivize investing, since if you just leave money sitting under a mattress, it loses buying power over time because of inflation.
> the economy works better when people spend money
The economy works better when people create wealth through cooperation, specialization, and trade. Taxing production reduces the incentive for people to do that.
So does taxing income, since we don't let people deduct most of their expenses. If you want to make people spend money, you'd implement a wealth tax.
Every time we try to institute a wealth tax, billionaires get antsy and start supporting fascism.
Yeah, that's why we don't have one. :)
> it would make much more sense to just tax companies and not individuals
Sure, but taxes are applied due to political feasibility, not because they "make sense".
The most sensible approach is to tax natural resources (land, carbon, mines, wells, electromagnetic spectrum) and other forms of economic rent, but that is politically infeasible (edit: or more accurately, very challenging) in a capitalist democracy.
Back when the federal government was constrained to that permitted within the 10th amendment, the average person paid taxes almost exclusively through indirect tariffs, property taxes, and some levies (effectively sales tax) on purchased goods. But back then the non-wartime spend of the federal government was like 2-4% of GDP
I don't follow you or the GP - all of these (and more) are taxed. I'm in Alberta, Canada where we pay property (land) tax, personal income tax, corporate income tax, consumption tax, payroll tax, wealth tax, estate transfer tax, mineral taxes (often in-kind), and (until recently) a direct carbon tax. And that's not nearly all of them. I can't imagine the US is much different.
Sorry, I should have been more specific.
From an economic standpoint, the most "sensible" (i.e. most efficient and least distortionary) tax is one that relies primarily on natural resources and other forms of economic rent instead of taxing labor, businesses, non-land property, wealth, or the creation of value. However, these rent-based taxes would need to be set very high to fully replace income, corporate, payroll, sales, property, VAT, wealth, estate, etc taxes.
Switching to such a system would be painful for people whose net worth is disproportionately invested in land or who consume significant resources relative to their income. If the majority of the population fall into this category (as is not uncommon in capitalist democracies) then such taxes would be broadly unpopular, making them politically infeasible.
> that is politically infeasible in a capitalist democracy.
It’s more accurate to say it it’s politically infeasible in our capitalist oligarchy.
Just because this is the way our society works now, we shouldn’t be duped into thinking this is the natural order of things. It’s not. A democratic society with a free market economy could work very differently.
Even a theocratic ~monarchy with a ~free market could work very differently. Dubai has minimal tax burden, with normally 0 income tax and a 0 or 9% corporate tax.
I agree that it's more "difficult" than "infeasible" so I've corrected above.
But I'm not sure I agree that the difficulty is due to being an oligarchy. In a democracy where the majority of citizens have the majority of their capital tied up in land (as is the case in the US and many capitalist democracies), shifting the tax burden onto land seems like it would be broadly unpopular.
I do agree with your main point though that a democratic society with a free market economy could work very differently, it's really the transition that would be broadly unpopular, and therefore politically difficult in a democracy.
> why are individuals taxed rather than businesses
Because rich people would find ways for all their income to be realized by businesses they control, resulting in zero personal tax liability.
> particularly if VAT is a tax, which it isn't in America
America has sales tax, which is functionally the same as VAT. It's levied at the state level, and some states have a zero rate at present. We also have high import tariffs now, which again work like VAT.
> I have to say that the American tax system sounds like hell, compared to what we have in the UK.
True.
It's annoying, but the trouble is overstated. The common version of this statement talks about jail! As long as you're not actively evading taxes, the trouble consists of some penalties and interest. Better not to have it, but also not a very big deal.
Trump is already talking about going after his perceived political enemies via the IRS. I guess if the President of the USA wants to target you, he'll get you, but still, no trouble is overstated when the government actively works against its constituents.
Why does the US have a tax prep industry in the first place?
In every other country in the world, taxes are handled by their respective financial authorities.
Why must every service and thing in the US must be a private profit making thing?
My lessons from working on IRS direct file lead me to believe there are a couple reasons:
1) How the welfare state is administered - as an example, the US does a child tax credit as part of the tax code, other countries have agencies that are setup to give parents money directly. We are trying to do _more_ with our taxes.
2) State taxes - the fact that there are multiple agencies that have their own rules and procedures makes things more complicated. Many localities have their own laws which can be hard to deal with. Efile has improved this since there are fewer ways for states to ask for new information
3) A lack of political will to simply. For the purposes of taxes, the us have multiple definitions of "are you 65" (were you 65 on Jan 1, were you 65 on Dec 31, etc). This makes taxes more complicated than they need to be
4) Conflicts between making things simple and incentivizing a behavior things like no taxes on tips or an EV tax credit both make filling taxes more complicated with the way that the tax code works right now. With better systems, this could all be taken care of for the taxpayer but right now it would require a more complex tax filing process
Direct File was able to solve some of these problems, even automatically using data the government had already where possible. Ultimately I think it is possible to make taxes automatic in the US but the data flows required for it are probably more complex than in other countries due to the fragmented nature of the US government.
> the data flows required for it are probably more complex than in other countries due to the fragmented nature of the US government
I'd also add the color that one of the main reasons for that complexity is political itself: In our zero-trust zero-confidence in government world today, even the notion of two .gov entities sharing data freely with one another terrifies people on any side of the political spectrum. Leftists freak out that say, their HUD application data could end up with ICE and allow a criminal immigrant who lives with them to get deported, while rightists freak out about their financials being shared with IRS to allow IRS to guarantee all taxes owed are paid.
> Conflicts between making things simple and incentivizing a behavior
Yes. When there's a negative behavior that the free market incentivizes, tax code updates can address it without sounding as scary as "More Industry Regulations". Same with social policy and other goals.
A lot of Americans are against the idea of "big government", which incentivizes government to use the tax code and other low-visibility means to accomplish larger goals.
I just want to thank you for this nuanced comment. I had never considered #3.
It seems to me that there are many conflicting interests. We want simple taxes but we also want special protections and carve-outs.
Yes! And the closer you look, the more you notice that "both sides" have their pet things that are obviously worth complicating the tax code to do. What most of us want is just for the other half of the people to give up all their favorite complications, so that our "worth it" half would be manageable. Which is why the complexity only grows.
A car sale is an activity that is already registered with the government. It doesn't seem impossible for the data about an electric vehicle sale and it's purchase price to make its way to the IRS. The IRS could create an API to share this type of data with tax preparation software.
> their pet things that are obviously worth complicating the tax code to do
I agree that this is at the root of the problem but I think that can be addressed by making it easier to file taxes or by reducing the complexity of the tax code. The child tax credit is a relatively common type of benefit across rich countries. The tax code could be simplified by administering this benefit via direct cash transfers through a different government agency. I think from this perspective, the IRS is _extremely_ efficient at benefit administration.
My personal opinion is that the tax code is not always a bad way to administer benefits but the paperwork burden is the problem and the experience of filing taxes needs to be made easier.
Things that need work necessarily cost money. Someone doing the work for free is not inherently sustainable. Profits motivate work to get done all on its own. Profits by definition is money over and above expenses. So it creates a perpetual sustainable mechanism. Competition motivates quality and efficient pricing (eventually).
Lobbying corrupts this a bit. However they are not lobbying to suppress private competitors only government-run competition that has no profit motive or competition. When the government runs it we still pay for it, except now people who don’t use it also pay. Also wealthy people pay a disproportionate share as compared to their use due to progressive income tax.
In theory anyone can start a company if they have a better or more efficient product or offering and get the profits instead.
Thats the rationale in a nutshell.
The usual argument is that taxes are already paying for the collection of data and calculation of amount, so why can't we just use the figure already calculated by default? This is most true for W2 employees without any uncommon circumstances, but there would seem to be a lot of people covered under that.
It's a political challenge, not a technical one. There are constituencies that reap concentrated benefits from the current system (e.g., tax-filing services) while imposing disperse costs on everyone else. Also, there are those who believe that the IRS is out to get them, so filing your own taxes is more trustworthy than going with a government-issued pre-filled default. And that going through the motions makes the pain of paying taxes more salient, so you're more likely to complain about it.
If you look at it as a practical or technical challenge, you're addressing the wrong question.
> However they are not lobbying to suppress private competitors only government-run competition that has no profit motive or competition.
But there is a profit (or rather income generation) motive: taxation is what funds the government. Parceling this work to a private 3rd party means paying a bunch of salaries that are much higher than what government employees get paid, generating profit for the company that gets taken out of the tax revenue, which increases the cost of the service for end users or the government receiving income.
Some politicians argue that government is inept and wasteful, and sponsoring no-nonsense projects that reduce middlemen in this process interferes with that narrative. If you got into office screaming that the government is your enemy, you’re not going to support projects that make it easier for citizens to interact with the government.
Most people's taxes don't actually need any real work 87+% just claim the federal deduction on there taxes these days.
The 18F team was doing remarkable work devoid of all profit motives, before it was gutted by this admin. Americans are missing out on a lot of QoL improvements based purely on the false belief that private is always better than public. In France, they're rolling out a new system where your taxes are filed fully automatically, and you get a PDF in your emails with a one page recap, telling you to only contact the admin if you feel like something is wrong with the recap.
Your take is the classic economist's "it works in practice, but does it work in theory?". Obviously tax filing works better when it's maintained by the government. You're severly underestimating the harmfulness of profiteering monopolies lobbying against any improvements and buying out the competition. Also, look at DOGE, with all the ruckus they made they just couldn't find that many inefficiencies. And for such "simple" software projects as a tax-filing platform, I just don't buy that private is better than public.
It seems worth while to emphasize that, while these are indeed arguments that are made, they're not actually true.
> Someone doing the work for free is not inherently sustainable
This does not apply to government / public work that has to be done anyways. Nor to any public service in general for that matter.
One reason is that the US tax code is horribly complicated compared to anyone else, because we have tried to enact all sorts of social policy and subsidy through the tax code, because it was somehow more politically palatable to do it that way.
Every country enacts social policy and subsidy through the tax code; the US is not special that way.
The US is special because the process of writing the tax code is corrupt. (Not uniquely corrupt, but certainly near an extreme among major countries.)
The US is also special because it has 50 states, all of which have their own thoughts about taxes.
Not to mention the almost 5K local income tax jurisdictions in the US https://taxfoundation.org/research/all/state/local-income-ta...
I have read several articles suggesting that the US does this more than most other countries, has a more complicated tax code as a result, and that is one reason why the US doesn't have more automated collection like most other countries.
But I don't have the articles at hand, and don't feel like an internet debate today, left as an exersize to the reader!
If the government can determine that my taxes are wrong, then they know the amount I have to pay. So why can't they tell me the correct number up front? (Yes, I know the reason why, but I still feel like it's a valid question)
I've always wondered if I could file some kind of freedom of information act request to get the IRS's opinion of what my taxes should be; and/or to get the source code to the IRS's program to calculate what their opinion of my taxes should be.
---
That being said, my Dad worked for a few years at the IRS part-time before he finally retired. He loved it. (My Dad is one of those people who enjoys taxes and finds them soothing.) I concluded that the IRS is a white-collar make-work program. It also leaks a lot of confidential social information, because he got to see all kinds of tax returns from all slices of economic status.
The issue is the government doesn't and shouldn't know every possible detail of your life so if you're in a complex tax situation (most people aren't and can just take the standard deduction) you'd still need to do the preparations. But for the vast majority of people the government does already know what you're taxes should be because you're just taking the standard deduction which 87% of people did in 2018 and that number has grown slightly since then. [0]
For more complex cases where you have more deduction and income sources the government doesn't really know all the individual setups you may or may not qualify for and they only audit a small percentage of filers every year.
The reason it's been blocked is a mess of ideological and economic. Ideological from people who interested that want to make taxes more annoying so people are generally more anti tax and then they get elected and make cuts to the top percentages/businesses permanent while the tax cuts for the majority of citizens are temporary. This sets up a debt crisis when those 'temporary' cuts are also extended they can use to leverage for government cuts. On the economic side there's a huge amount of money made each year by preparing taxes for people too intimidated by the complexity to DIY it. So they ally with the generically antitax side to keep their business going.
[0] https://www.irs.gov/statistics/soi-tax-stats-tax-stats-at-a-...
They can determine your taxes are "fishy" and then demand further documentation. Say you declared you sold a car and profited, but seemingly under-reported the sale price. They'd show up and demand to see the bill-of-sale, maybe contact the buyer, etc. How would the government know ahead of time what price you sold the car for?
Most fraud about car sales is to claim a lower price in order to skip on sales taxes collected by the states' motor vehicle agencies. Not all states charge a sales tax on individual-to-individual sales. Here in Kentucky, the state constitution says that taxes have to be charged on the assessed value, so part of the annual registration is based on the assessed value (min $100 for boats or $200 for cars/trucks). I used to work for KY's Transportation Cabinet (combo DMV + highway dept).
I don't understand how this changes anything?
How would they know now?
These examples are silly, most people are not selling a car privately all the time and they can handle any reporting or changes when you transfer the ownership.
In many countries for the majority of the population they can and do determine how much tax should be paid, and many people don’t have to file tax returns.
What makes you think the government can determine that your taxes are wrong?
Most of that complexity does not matter for most people because the standard deduction is higher than you can reach through itemized deductions. Even home owners can usually get more via standard than going through the trouble of mortgage interest deductions.
Except for all those above-the-line deductions and credits that apply even if you take the standard deduction. Like the new tip tax credit and senior tax credit recently added to our already incredibly complicated tax code.
The tip tax credit is only for businesses though right? That's all I'm finding when I search for tip tax credit, so that's not a factor for individual filers. Senior credit is a bit more but it's still relatively simple to claim. That would also be pretty trivial under the government prepared initial return scenario too.
Land of the f(r)ee
My wife and I have visited several European countries, and I just don't agree. Switzerland is the land of many fees, followed by Iceland and other nordic countries. Germany, France, and the UK are also expensive. The going "low" price in Iceland right now for petrol is $8.74 USD/gallon.
(Did you know that most of the public transport in the UK is owned by German and Dutch companies? They can rack up prices with little consequence.)
The US has gotten more expensive to be sure, but IMO most of our high-cost problems stem from consolidated industries with regulatory capture (healthcare, farming+food+pesticide, tax prep, etc.) and low wages for the bottom 50%, not fees.
This is the greatest comment I have seen in a very long time. Kudos.
Why must every service and thing in the US must be a private profit making thing?
In the US, some believe that it's better to replace a government function that costs X with a private entity that charges X. The reasoning is that the efficient free market will drive down X, leading to better prices for everyone.
In reality, my city's parking meters now charge a $0.50 minimum with a service fee of $0.25 to the private company that now runs them. I've tried competing by setting up my own lower-priced meters, but that's not working out so well.
Partially there's this idea that if it the government that's in charge, you'll somehow pay more taxes.
But if it's private enterprise, their incentive is to lower your taxes as much as they can, while you pay them a small fee.
Not saying that this mentality or assumptions are good / correct, but that's basically the rationale I've heard too many times.
There's this deeply, deeply ingrained idea that the government wants to rob you blind, no mater what.
And yet the government as a whole has no incentive to take your money beyond the tax laws they pass. Individuals may be corrupt but that's a very different issue.
Whereas a for-profit company's explicitly stated goal is to make as much money off you as they can.
Because of the Norquist tax pledge. Many politicians are opposed to any tax increase, including anything that makes paying taxes easier
> Why must every service and thing in the US must be a private profit making thing?
Culture
Indeed, and tbh "work must be paid for" is not necessarily a bad thing. In the Netherlands we pay for our tax-software via our taxes (and I still spend about 250 eur on an accountant to do it for me, as it takes me a whole evening as an someone with a (small) company, I'm better of writing hours), is it the most efficient? I think not, judging from how much our government spends on IT projects that fail. There are a lot of hidden costs.
That said, the lobbying is really bad of course, probably also prevents cheaper or FOSS alternatives.
Two big reasons:
1. If the government is in charge of deciding the tax policy and collecting the taxes, it creates a potential conflict of interest if they are also in charge of telling you how much you owe. In theory, they could charge you more than they're legally allowed to, but how would you know unless you (or someone else) also calculated your taxes? A common suggestion to this is to have the government give a return that shows what they _think_ is owed, but this creates a conflict if the government accidentally underbills you, since you're not likely to correct the mistake. In order to ensure compliance on both sides, both the government and individual need to prepare the tax return. Otherwise, one party risks being overcharged/underpaid.
2. Tax evasion is an effective law enforcement tool for catching criminals, so by putting the burden on the individual to report taxes, you add another tool in the law enforcement toolkit. From the state's perspective, it is more compelling to tell a jury "this person owed $5 but only paid $1" than "this person owed $5, but only paid $1 because we told them they only owed $1." Tax evasion is how famous gangsters like Al Capone and other shady-characters have historically been caught[0]
The tax prep industry is lucrative largely because of lobbying and consumer ignorance. There are plenty of free-file options for folks below certain income thresholds, as well as non-profits who will do your taxes for free. There are also lots of free tax-prep sites, but they are being drowned out by the advertising and lobbying of the for-profit tax-prep industry.
To add my own 2-cents: if your income comes from investments, 1099, or W2, you likely can do your own taxes in about an hour. I personally use TaxHawk [1] since it's free for federal and $16 per state return, and has the same kind of interface as turbotax and the like. If you want to save on that $16, you could use TaxSlayer [2] instead -- I've used all of them, and personally prefer TaxHawk. Just remember to decline any of the upselling they do just before you submit your refund. You probably don't need the premium service, a dedicated tax pro, nor audit protection.
Source: am a CPA
[0] https://en.wikipedia.org/wiki/Al_Capone#Tax_evasion
[1] https://www.taxhawk.com/software/
[2] https://www.taxslayer.com/#sf_qualify
#1 works fine in stores and restaurants. Why would the government be different?
#2 isn't a strong enough reason to justify the significant out-of-pocket costs and lost productivity of the US tax system. If the tax collector is regularly finding only $1 of $5 tax obligations, that seems better solved by improving the collector's record-keeping, not hanging civil and criminal penalties over the heads of 350 million citizens.
Citation needed.
In Germany tax-prep industry is huge, there is a huge network of tax consultants plus paid online services like taxfix and smartsteuer.
The only countries I lived which didn't require you to declare the taxes were Russia and Georgia, mostly because 13% and 20% flat tax rate respectively.
Any country which does have complicated progressive tax system would require you to declare taxes at least at some cases.
Germany has ELSTER, which is a free government provided online service. I use it every year to fill in my tax declaration. It's not perfect but it works pretty good. Not so friendly for expats since it doesn't have internationalisation, so you need to know a bit of german (I use G translate).
ELSTER is available but it is extremely complicated to use. Not even my Tax advisor uses it directly. You must be the first person I’ve heard that uses it directly.
For me not worth to use it having extremely good tools like the offering from WISO.
In my opinion a complicated tax law is a direct attack from the State against low and middle income population. If you have low income and poor education you will not be able to make use of the tax law to increase your available income, something that high income citizens do daily.
In this case we have to thank the free market to provide really easy tools for less than €30 so middle and low income citizens can start at least to take advantage of the tax law.
I’ve lived in multiple countries and always did my tax report myself. And the German situation is so blatantly designed, compared to other countries, to benefit only a very small portion of the population.
Not only that, If the amount of man/hours that the whole country of Germany spends doing taxes would be spent on productivity gains or just normal work, the country would become immediately the richest country in the world. Instead, it’s just wasted effort and work.
I’ve used Elster to file my German taxes until I left the country. Very common to use that software directly. Probably not much fun though if one’s situation isn’t straight forward.
What does your Tax advisor use, post mail?
"extremely complicated to use" well, that is something that you hear often from Tax advisors or tools for less than €30. Same FUD tactics.
There is a world of difference between not having to declare taxes, and having an industry of tax filers.
In France you have to declare taxes, but everything known to the tax authorities is pre-filled, leaving you to add any special incomes/deductions that didn't come trough regular channels that get automatically reported.
You still have tax consultants to help you optimise if there are higher revenues, but it's a very niche service.
The IRS actually knows everything, too. They just make you tell them what they already know.
There's a group of republicans who prevent them from doing anything else.
They helpfully send you letter when you screwed up, too.
Germany, as a de-facto vassal state of the US, is the exception that confirms the rule. This is an observation that comes from almost a lifetime of living in this region of our world.
Because we were founded on, and still prefer, that the government stays out of as many things as possible. It's always cheaper to pay a private company for a service than it is to pay your government to do it. And yes, you're paying your respective financial authorities to do it through your tax dollars.
Factually, people in the US pay more for healthcare and get worse outcomes than developed countries.
https://healthjournalism.org/blog/2024/09/report-u-s-spends-...
I can’t find it on mobile right now, but the associated graph is very illustrative
It is not cheaper to pay a private company.
America is entrepreneurial and many people have a small business of some kind.
In other countries the regulation and culture is less business friendly so people don’t do it. Or they operate illegally,
I think that a lot of immigrants have to adjust to how seriously tax regulations are taken where they may have been able to ignore them before.
Because most people don't know how simple doing their own taxes are. This is aided by a few people who have a complex situation and would have to have a real accountant do their taxes in every country.
But it’s typically not simple. People often have some kind of life complexity that makes their taxes hard to confidently self-navigate here in the U.S.
Receiving government assistance? Some kinds are taxable, some aren’t.
Moved states? You have multiple state filings now.
Got married? divorced? Splitting custody or property? Special tax forms to fill.
Native American? Veteran with disability? Senior? Student with loans? Bankruptcy? Freelance income? Etc.
Normal life events turn into tax complexity consequences. And without expert help, it’s hard to know if you’re doing your taxes correctly, which adds stress and time.
> Receiving government assistance? Some kinds are taxable, some aren’t.
One would think that the government should know what government assistance you're getting. In any case, taxable benefits get reported to the IRS automatically on form 1099-G.
> Moved states? You have multiple state filings now.
Arguably irrelevant. You can change how filings work federally without changing how state filings work. Perfect is the enemy of good, etc.
> Got married? divorced? Splitting custody or property? Special tax forms to fill.
Sure. Sometimes you have life events that happen where you'll need to make adjustments. Such possible events can be mentioned in the letter / email you get from the IRS, with details as to how to adjust the filing. This is typically how it's been done in other countries with automatic filing.
> Native American? Veteran with disability? Senior? Student with loans? Bankruptcy? Freelance income? Etc.
Income typically gets reported to the IRS on a 1099 or a W-2.
Loan interest gets reported to the IRS on 1098-E, so the deduction could be automatically calculated.
Presumably the IRS would know if you previously filed a tax exemption and could assume that hasn't changed if it's based on things like having registered membership in a federally recognized tribe. Even if you haven't filed that exemption before, presumably the government would know that you registered the membership.
The government knows your birth date so presumably they'd be able to calculate when you become a senior, where that's relevant.
Bankruptcy is one of those special cases that I'd expect would be an exception case where you'd need to adjust the filing (and your trustee would probably help with that).
Most people don't have special cases that require changes. The IRS already has a shockingly large amount of data on people. I encourage you to try getting your tax transcript some time[1], it should be illuminating.
1. https://www.irs.gov/individuals/get-transcript
Most of those are another line on the form and read instructions. Some like moving states is hard but people don't do that often.
Yip, consider how much money banks make by injecting themselves between you and the reserve bank.
This is a very different situation. If you're interested, I'd recommend reading Can't We Print More Money by staff at the Bank of England (https://www.amazon.co.uk/Cant-Just-Print-More-Money/dp/18479...).
The short answer is central banks are not setup to offer services directly to the public.
This is different to the tax office in that people already need to interact directly with it! Anyone in the UK can fill out a Self Assessment, for example, however it's optional for almost everyone, because Pay As You Earn takes the tax off your employer instead.
Can’t you file your taxes for free in the US if you know how?
Yes, you can download the form 1040 and fill it by yourself, you'd need a few Schedules attached. They all have instructions available online, your work has to send you a copy of everything they paid you and into the IRS (regular jobs always err on the side of overpaying), and while it is not hard, it definitely looks intimidating and takes time to understand, especially the deductions.
You can also just not file your taxes, if you don't owe anything (and as I said, jobs always err on the side of overpaying) they won't bother you, but most people end up eligible for the tax refund, so it is more beneficial to pay for that service.
Sad part is, when I started working, this was normal. My father showed me how to do it. I did it for a few years and then TurboTax came along and I used that for free. Then they rug pulled me into a deluxe one year because I had 1099 income and ever since I’ve been jailed into paying if I want to use them. 1099 or not.
I used to do that every year. It wasn't hard. However one year I forgot to copy line 12b from form 9876 to line 34c of form 5432 and when the IRS caught that I had a big mess to clean up (since state taxes copy federal taxes so I had to refile state with the corrected numbers...). Now I just pay a small fee to FreeTaxUSA (I figure they deserve some money for their efforts in creating software).
One thing I can say for sure: doing taxes with a computer takes me longer than filling out the paper forms by hand! There are so many delays while "calculated" (as if a ghz computer can't add numbers fast), and loading question pages that I can obviously skip (I never worked for the rail road, I'm not blind...) but take extra time because of how they setup the UI.
Switch to freetax USA. I have 1099 income and it's still free.
Besides the point. The point I was making is that because I had one year of 1099 income in the past, I was paywalled into paying. I no longer use TurboTax as my tax needs have changed. Thanks though but I wasn’t soliciting for alternatives.
That's what I do. It's really not very difficult if you don't have a complicated income situation. Even with some self-employment I found it straightforward. Once you've done one year, subsequent years are very similar (but read the bulletins that talk about "what's new this year" because there are always differences.
The spreadsheet downloadable at https://sites.google.com/view/incometaxspreadsheet/home (no affiliation) is helpful to avoid math errors and get the entries from the various schedules into the proper place on the main forms.
I have done this a few times, but for me it takes several hours and I always am worried I have made a mistake. If you have simple investments you can still run into confusing things that are very hard to follow.
> You can also just not file your taxes, if you don't owe anything (and as I said, jobs always err on the side of overpaying) they won't bother you
From the IRS website:
>Who must file >Most U.S. citizens or permanent residents who work in the U.S. have to file a tax return. >Generally, you need to file if: > Your income is over the filing requirement > You have over $400 in net earnings from self-employment (side jobs or other independent work) > You had other situations that require you to file
Not sure if your intent was to discourage filing, but it read that way to me.
IRS says you are “required to file”, but in reality the only penalties for non-filing are as a percentage of the amount of tax owed. If no tax is owed (and in fact you are owed a refund), then there are no penalties for not filing.
OTOH it would be a pretty dumb move since the chances that the amount taken out of your checks was exactly right is very small, and you’d be leaving hundreds or thousands of dollars in refunds unclaimed.
Most people with a job have to file. If you're due a refund and don't file to claim it, probably they won't bother you but technically you could be penalized for failure to file on time.
>and while it is not hard, it definitely looks intimidating and takes time to understand, especially the deductions.
Even this is overselling it.
Most people have ZERO deductions to deal with. You put in your W2 pay, you take the standard deduction, and you file and get your money back.
Next time you use something like turbotax, download the forms it generates and look at them. There's zero complexity. Turbotax doesn't do anything. It's literally filling in 14 rows of numbers that come directly from your W2.
Hell, turbotax purposely runs fake animations and makes you waste a ton of time saying "Oh we are looking for all these deductions" but it's all a lie. None of the animations actually do anything. Most of the deductions it is supposedly checking for would Never apply to someone with a normal job. They want you to think it's complicated. They will ask you questions they know the answer to just to waste your time. Every single year, TurboTax asks me if I'm eligible for the earned income tax credit, and every single year, TurboTax knows from the previous questions that I cannot possibly be eligible. They ask me anyway, because it seems like a complicated credit so it makes taxes seem more complicated.
Taxes could take less than 15 minutes for nearly all Americans. Turbotax's bullshit, even disregarding the stupid tax they are charging the whole country just to copy some numbers from column a to column b literally wastes everyone's time every year.
People who insist that taxes are complicated are flat out wrong. If you run a small business, you absolutely have the choice to just file extremely simple taxes and pay a higher tax rate. It is a choice to attempt to take every possible deduction. Each and every one of those deductions is a handout to business owners. They bitch and moan about how bad taxes are, but their taxes are complicated so that they can make more profit.
Guess what? Nobody forces you to run a business, which again, is a handout to capital owners. A few hundred dollars in permits or registration every year is a perfectly valid cost to enable you to take advantage of the insane benefit of "you can literally cause hundreds of deaths but as long as you weren't obviously grossly negligent you are in the clear". Nobody forced you to attempt to take every single handout offered every single year. Nobody forced you to be your own boss, to own capital, to profit off of the labor of others.
Such entitlement. These same people will turn around and cry about "freeloaders" and "welfare queens" and "handouts"
That's why GP said "tax prep". Anyone can download and submit a 1040. That isn't the part that takes domain expertise.
I don’t know why assume that in every country in the world that is free. In my European country until 15 years ago or so you had to hire someone to do your taxes for you, and currently the free method only works for the most simple tax filing. In fact what you get is called a “draft” of your tax filings because you’re supposed to make sure it’s okay, and it’s your responsibility if you miss something or if the draft is wrong.
And obviously the draft usually assumes that you will have to pay more tax, since there’s a perverse incentive given it’s the government who fills it for you.
The tax preparation industry exists in much of the world.
Taxes are simple if you live in one place and only receive income from your employer. If you have multiple sources of income, connections to multiple countries, etc., things can get very complicated very fast. That's why the tax prep industry exists - and not just in the US.
That being said, the Internal Revenue Service could prepare the taxes of most Americans. A simple system of, "Here's what we think you owe, based on the information we have on hand - sign and submit if you agree" would work for most people.
> the Internal Revenue Service could prepare the taxes of most Americans
IRS Direct File[1] did exactly this. It apparently worked really well, and people liked using it, netting ~$20 billion in savings to the Americans that used it (roughly half of that came out of the pockets of the tax-prep industry).
Then, DOGE got to it and the new administration's IRS commissioner killed the program.
1 - https://en.wikipedia.org/wiki/IRS_Direct_File
In Australia, if you work in multiple places and at multiple companies, it’s still trivial to file your own taxes. You log in to the government portal, where the collected amounts of tax from each income source, including bank interest, is listed. It can get more complicated if you have your own business but for the majority of people it’s easy and doesn’t require a third party.
Australia has a progressive tax structure, right? If you have multiple income sources how does each source know the proper withholdings? How do they know what deductions you'll be eligible for or are wanting to take?
If it works anything like what we've got in Norway, they take a rough percentage, and once every year when the taxes are filed, the IRS equivalent charges or repays the missing amount.
I don't understand how these could be issues. They aren't in my country.
You're still responsible.
Tell each company how much to withhold.
If they take too much, you get it back when you file taxes.
If they don't take enough, you pay a penalty for having too large of a bill when you file.
The issues you mention exist regardless of how many employers you have, because you can have income that does not come from an employer (e.g. stock dividends).
This sounds the same as the US then. If you have more than one income source or you're planning on taking something other than the standard deduction you need to tell your income sources to change withholdings. If they take too much, you get it back when you file taxes.
What's the big difference? You don't need a tax preparer to do your taxes in the US, and if all you have is a normal W-2 income and a bit of bank interest its a pretty simple couple of forms to file.
It's hard to tell if there's much of a difference or not since I don't really know the US system (and I'm, in all likelihood, from yet another country different than GP).
The simplest cases, however, don't really require filing forms at all. The withholding process sounds similar, and when the time for filing taxes comes, you get a pre-filled return sheet with withheld taxes and your pre-calculated actual tax based on the information the tax office has.
Employers directly report income to the tax office, so that information is already included. Banks also automatically withhold taxes on the interest they pay and report it to the tax office. I think banks and broker companies usually report sales of stocks etc. made through them as well.
The same pre-filled return sheet includes national and local income taxes that have been automatically calculated based on your place of residence. (I assume this is more complex in the US due to different state legislations; here the tax legislation is the same everywhere even though local tax rates vary.)
If you don't want to add deductions (in addition to standard ones) and you don't have any corrections to make, you don't need to file any forms. The only things you need to do are to pay the difference if you owe something or to report your account number for a refund if they don't have it already. Otherwise filing in a simple case is a no-op.
If you do want to file for deductions or make corrections, you can do that with an online form.
And of course you still do want to check that the pre-calculated information is correct and whether there are any non-automatic deductions for which you're eligible.
More complex cases are, well, more complex. If you've got income from renting an apartment, for example, you do need to report that information yourself. But it's still a relatively simple online form.
Real estate tax is handled separately from income tax. You get sent a bill with a pre-calculated sum based on property registered in your name. If you have no corrections to make, you just pay the bill.
In contrast, I think even small businesses commonly hire accountants since for them the process is probably more complex with all the deductibles etc.
If the simple cases are similarly simple in the US and making corrections is a relatively straightforward form away, I wonder why there always seems to be such a big fuss in the US about filing taxes. Because of state/local differences in tax code? Just overall complex legislation? Or maybe it's just more common to have income from a variety of sources so more people need to deal with the more complex cases? Is the filing process paper-only and the only way to do simple online filing with automatic calculation to go through commercial tax-filing software?
In the UK you get a code based on last year’s earnings, which the company uses to set a flat rate of withholding on each paycheck. If there’s any discrepancy that usually just feeds into next year’s code.
In Australia, you probably need to tell the companies about the other income sources, and they will attempt to withhold at the appropriate rate. Then at the end of financial year, you go to your pre-filled online tax return which has all the figures reported by each company you work for already present and sums up whether there’s a refund or payment due. This is also where you enter any deductions.
> A simple system of, "Here's what we think you owe, based on the information we have on hand - sign and submit if you agree" would work for most people.
They already do that -- if you calculate your taxes wrong, they will send the adjustment (they will do it both ways, pay you back or ask for the remainder). I guess they might not be aware of all the deductions, but standard deduction beats itemized one for the majority, so they can 100% automate this whole process if they decide to. For complex cases and businesses, sure, you are on your own, but at least most W2 should be covered.
Yes, but tax filers have potential civil and criminal liability risk if they make a mistake.
Presumably much less if one pays more than the IRS calculates is owed.
Essentially both the IRS and tax filers verify correctness of the tax filer's return and the tax filer can be prosecuted if they make a mistake according to the IRS.
> Yes, but tax filers have potential civil and criminal liability risk if they make a mistake.
How is this an issue? Why would it be different under another system?
I see you posting a lot of what I think are pro-tax-prep messages but they don't seem to have any substance. Please try to take them to the conclusion of an argument. (That is, finish by connecting the facts you are posting with some assertion about the desirability of the current system, or some assertion the parent has made.)
Apologies.
What I mean to highlight is that although a mistake in filing may lead to the IRS rectifying the mistake by sending/requesting the error balance, there are other possible effects, including civil and criminal liabilities.
This is undesirable. As mentioned in many comments here, the vast majority of filers, especially those with one employer and no substantial investment income, should not be required to file their taxes and instead the IRS should communicate the calculation result and ask if the filer disagrees.
This is a classic problem related to the "you slice, I choose" false dichotomy[0]. Essentially, even assuming it costs zero time to fill out and file a tax return, any mistake at all could lead to a negative consequence to filer.
As an aside, always choose to choose and not to cut the cake :)
[0] https://en.wikipedia.org/wiki/Fair_cake-cutting
I suspect failing to report significant income to the tax authorities would be considered tax fraud in just about any legislation. If there weren't any kind of a potential penalty for failing to report or for significantly under-reporting, doing so would be potentially beneficial with no drawbacks.
Failing to report income or reporting false information for financial gain can lead to extra tax or prosecution for tax fraud where I live. I'd definitely be careful to report all income if I had income from sources that don't automatically withhold taxes, especially if it were significant.
I don't think they'll drag you to criminal court if you make a small mistake, though. But if you fail to report thousands of euros of income and the authorities get wind of it, sure, especially if it seems intentional.
I don't know if the risk of prosecution or other legal consequences is somehow greater in the US.
Right, when the Europeans say the tax is paid as you earn and the authorities let you file differences free and easily, they mean the vast majority of tax payers. It is rare to be the exception.
Whereas I guess American Exceptionism (tm) means you all have to pay a rent seeking company to file taxes…?
That only works if all of your income comes from your employer, and is thus reported directly to the financial authorities and subject to withholding.
It is not that rare at all for Europeans to have other sources of income, and thus to have to file their own taxes.
In Ireland, and I think many other countries, if you have under 6k non-employment income, it’s ~trivial; you fill in a form on the website. It only gets complicated over that (though you would still typically do it all online; the form just gets _a lot_ scarier)
As an European with multiple sources of income, all that boils down to is literally excel style fill in the boxes deal. There's even free tools that can handle the simple formulas if I don't trust my calculator enough. 1 hour a year at absolute worst; definitely no space for a finacial parasite to latch onto.
Yes, and what do you think it is like in the US? It works exactly the same way.
You have a very simple tax situation. Many people do not.
In the US, if you just have wage/salary income and an investment account, and you lived the entire year in one state, your taxes are also very simple. You can fill everything out yourself in one evening, or pay $100 to do it with tax preparation software.
But things can rapidly get complicated. Did you move from one state to another during the year? Do you live in one state but work for an employer in a different state? Are there any credits or deductions you're eligible for? Or god forbid you live abroad, at which point you're dealing with double-taxation treaties and the like.
> "Here's what we think you owe, based on the information we have on hand - sign and submit if you agree"
That implies the government would know significantly more about my life and my day to day affairs. That sounds like it would be a privacy nightmare.
No, they would know exactly what they know now. Employers already report your earnings to both the federal and state IRS agencies and pay your withholdings automatically adjusted for your dependencies. So a simple form that says you made X and claimed Y dependencies. Click submit to confirm…
That would be simple enough for most people (1 job, 1 home, maybe some kids) and it doesn’t require the government to know anything additional.
In that most common scenario no tax accounting service should be needed. Honestly a 1040 isn’t that complicated in that scenario either, but is still too difficult for a good number of people and it’s just unnecessary.
There is so much more to filing taxes than earnings. Yes, if all I had was a W-2 this would be trivial.
And if all you have is a W-2 you don't experience most of the complexity of filing as it stands now anyway.
How exactly? Currently, you report your earnings, your employers report what they've paid you, and banks report specific transactions. How does simplifying/eliminating the deduction process (which is all that an accountant is doing) give the government more info about you?
This one government agency would need to know the superset of everything about you that could possibly be reported on any tax form. The simple case breaks down quickly. If taxes were redesigned to become overall much simpler, then sure, the reporting could be much simpler and more passive for the filer.
Nobody is suggesting they create a government super computer that does every single person's taxes perfectly.
They're suggesting letting the irs actually use the resources they already have to automate the vast majority of the people's taxes to save everyone time and money.
It doesn't have to be perfect to be a huge improvement.
Businesses paying people already file copies of the W-2s and 1099s that they send to their employees with the IRS, meaning that, for a very large chunk of Americans, the IRS already knows everything needed to fill out their tax forms.
Having lived in both the US and several European countries, America is already the privacy nightmare because all your data is with corporations who can do absolutely anything with it. European-style effortless automatic tax filing certainly wouldn’t make it any worse.
(Also it’s rather ironic that people who think like you have been voting for the party which is currently enabling Palantir to build Chinese-style surveillance in America. But as long as the data is owned by billionaires and they promise to only use it against the “others”, I guess it’s fine.)
In the UK, for example, if you are a simple case (PAYE employee, no other sources of income) they just do it, you never interact with HMRC at all in the ordinary procession of things. You may get a yearly summary form (P60) but that's about it.
Here in Australia everyone must fill in an annual return, but it’s a fairly well automated online system and they’re probably already already have most of the fields filled in, you just need to add anything more complicated or any deductions you think you’re owed.
In both systems you can have an accountant file for you, or use other software, but you don't need to and most British people will never file a single return in their lives.
Should the US employ enough people to file 160 million tax returns each year? (Just individuals not corporations)
The tax code is a behemoth. Plenty of loopholes to find to save money.
Also, most of the tax prep companies are thinly disguised payday loan companies.
I think the point is that the vast majority of people don't really have a unique tax situation. And all the data already exists. There's just no framework set up to allow this to be automated like there is in other countries.
It should be the case that all your basic taxes get calculated for you and taken at the point you're paid by your employer. Anything exceptional should be able to be claimed back via a web portal somewhere.
So it's not like 160m tax returns NEED to be filed. That's just how it is today.
There are a lot less loop holes than in the past. In the 1950s taxes on the rich were 90% - but there were so many loopholes the rich in reality paid a similar tax rate to their peers today where the tax rates are lower, but there are also less loopholes.
In the 1950s the common person couldn't take advantage of most loopholes (I'm not old enough to remember, but I'd guess mortgage interest was the only useful one, the rest where $100 here and there but it never added up to much for the common person)
Most of the tax code is irrelevant to 90+% of people. ~90% of people just claim the standard deduction every year, you have to be significantly well off or in an odd tax situation for itemized deductions to come out to more than the standard deduction.
Yeah they should.
You can do taxes for free most of the time. Millions of us do every year, and the IRS estimates that 70% of tax payers could file for free.
> Why must every service and thing in the US must be a private profit making thing?
It isn't. There are roughly 2 million nonprofits. "Nonprofit organizations play a significant role in the US economy. In 2022, there were 1.97 million nonprofits operating in the US"
And there are endless government programs and millions of government employees. The federal government alone spends over $6 trillion of our money, and money we don't have, per year, and most of it is on mandatory social programs.
"About 60% of all federal spending is categorized as mandatory spending — which amounted to $3.8 trillion last year. This spending is essentially on autopilot because it funds programs whose eligibility rules and benefit formulas are set in law. This consists mostly of programs like Social Security, Medicare, Medicaid and Veterans care."
https://usafacts.org/just-the-facts/budget/
No other countries have tax prep services?
Most countries use some sort of PAYE system, so the average person will need to do little or nothing on tax.
Yes, and this includes the US!
When people say they are “paying their taxes”, really what they’re doing is checking whether the automatic tax deduction out of each paycheck was properly calculated over the whole year, and whether any special circumstances make them eligible for a refund (or whether they’ve had other income they need to pay tax on).
Every country I've ever lived in you had to prep and submit your own taxes. Never heard of that system.
If you happen to be an entrepreneur, a foreigner (relative to the country of work), or an American citizen (despite holding the citizenship you're on, thanks FATCA!), then, yeah, I can see why you have never encountered the simpler arrangements.
If you're an ordinary citizen of most countries and work under a company, the company is obliged to track it for you. What you get is a very simplified form asking if you have more income sources than from your work, and the local tax system means that most of them legally do not have any (for example, banks collect the taxes for the interest you have received, not the arcane American system where you're the one responsible for that).
> a foreigner (relative to the country of work)
In a PAYE system, merely being a foreigner isn't _usually_ an issue, provided that you're domiciled and don't have foreign income. The exception, as you mention, would be a US citizen; the US's approach to foreign income of its citizens is sufficiently weird that they'll generally have annoying tax situations.
> What you get is a very simplified form asking if you have more income sources than from your work, and the local tax system means that most of them legally do not have any
If even that. In Ireland, and I believe the UK, you only have to fill out that form if you actually _do_ have non-employment income which is not deducted at source. Most peoples' only interaction with Irish Revenue would be to claim tax credits on rent/mortgage/medical expenditure/whatever.
>If you're an ordinary citizen of most countries and work under a company, the company is obliged to track it for you.
So a W-2?
>for example, banks collect the taxes for the interest you have received, not the arcane American system where you're the one responsible for that).
So a 1099?
I gotta be honest it sounds like you don't really understand the American tax system very well.
In my country, all my tax is deducted from my salary before reaching to me.
For other things, I can go to a "Virtual Tax Office" with my browser or my mobile banking application and pay with cash or credit card, sometimes with zero interest installments, even.
This is exactly how it works in the US, too.
The reason this topic continually comes up is that people in the US are stupid and bad at math, and the IRS is very heavy-handed and issues penalties for minor tax errors, so people are afraid to interact with the process without a trusted intermediary.
Literally none of this is true.
The irs is neither heavy handed nor particularly quick to issue penalties.
There is an extremely effective and powerful alliance between certain republican politicians and tax industry corporations that work to convince people taxes are hard and the gov can't do them and they need an agent.
It works.
Okay, the official IRS policy is that you don't have to file taxes if you don't owe anything. What happens if you do not file your taxes, but the IRS believes you owe them money?
I mean, it depends if the amount is $10billion or $10, but generally they start by sending you a letter at wherever they think you live saying "hello, please write us a check for $x, thanks".
Then they do that... again. At some point they probably put your name on some kind of list of Bad Taxpayers but unless we're talking millions here they probably aren't sending agents after you in specific.
I mean, I don't file anything. For my car tax, I go to the site, enter my license plate, and a couple of other details, and the number shows up.
I enter my credit card number, and pay. That's all.
Same for other stuff like housing tax, too.
That's how it works in the US also, though personal property and real estate taxes are collected at the state and local level (if they exist, which is dependent on the state and local government).
For most people in the US, filing their taxes is a very simple process, which is why it's so annoying that Intuit has successfully lobbied to integrate themselves into the process.
I mean, you answered your own question: because a minority found a way to make a profit at the expense of the majority.
(This particular situation is an alliance between the tax preparers, who have the obvious interest, and republicans who are ideogically comitted to inefficient/ineffective governments)
Paywall all the things... all the things.
Private, profit-making things are willing & able to "generously support" the politicians who enable their business models.
Vs. public services and public servants? Not so much.
wait until you hear about our healthcare middlemen.
> Why must every service and thing in the US must be a private profit making thing?
This is a side-effect of the Protestant Work Ethic. Weber coined the term in 1905 as a way to explain why the Northern European countries (who were predominantly Protestants) were wealthy while the Southern European countries (who were predominantly Catholic) were poor. Prior to the election of JFK as US President, anti-Catholic sentiments were widespread throughout the US (which explains why Irish & Italians were not considered "white" until the early 20th Century). Even today, many Evangelicals do not consider Catholics to be Christians.
> Calvin taught that all men must work, even the rich, because to work was the will of God. It was the duty of men to serve as God's instruments here on earth, to reshape the world in the fashion of the Kingdom of God, and to become a part of the continuing process of His creation (Braude, 1975). Men were not to lust after wealth, possessions, or easy living, but were to reinvest the profits of their labor into financing further ventures. Earnings were thus to be reinvested over and over again, ad infinitum, or to the end of time (Lipset, 1990). Using profits to help others rise from a lessor level of subsistence violated God's will since persons could only demonstrate that they were among the Elect through their own labor (Lipset, 1990).
> Selection of an occupation and pursuing it to achieve the greatest profit possible was considered by Calvinists to be a religious duty. Not only condoning, but encouraging the pursuit of unlimited profit was a radical departure from the Christian beliefs of the middle ages. In addition, unlike Luther, Calvin considered it appropriate to seek an occupation which would provide the greatest earnings possible. If that meant abandoning the family trade or profession, the change was not only allowed, but it was considered to be one's religious duty (Tilgher, 1930).
These 2 paragraphs also explain why many in the US have such an utter hatred for any sort of social safety net for poor people - those people are damned in the Biblical sense and therefore it is a sin to give them any sort of money, food or healthcare.
[0] - https://en.wikipedia.org/wiki/Protestant_work_ethic
[1] - History of it: http://workethic.coe.uga.edu/hpro.html
[2] - https://en.wikipedia.org/wiki/Anti-Catholicism_in_the_United...
This is a really interesting take I had not heard before. Any further reading or additional concepts you mind sharing on this idea?
Which one?
During the Cold War, one criticism of socialists/communists was that they were taking orders from Moscow. Likewise, Catholics were presumed to be taking orders from Rome.
> Supporters of the Know Nothing movement believed that an alleged "Romanist" conspiracy to subvert civil and religious liberty in the United States was being hatched by Catholics. Therefore, they sought to politically organize native-born Protestants in defense of their traditional religious and political values.
https://en.wikipedia.org/wiki/Know_Nothing
During the later 1800s, many "charity hospitals" would abduct children of Catholic women and then sell them as orphans that other people could adopt. The Klu Klux Klan would also attack Catholics - not just burning crosses and lynching black people.
https://en.wikipedia.org/wiki/Orphan_Train https://orphantraindepot.org/history/opposition-to-the-orpha...
https://en.wikipedia.org/wiki/Definitions_of_whiteness_in_th...
> Not only were Irish immigrants viewed as interlopers by many white Americans (an irony, considering the historical treatment of Native Americans), but these immigrants were Catholics in a primarily Protestant land. It was a religious difference that widened the divide, as did the fact that many Irish immigrants didn't speak English. As strange as may it may sound today, Irish immigrants were not considered "white" and were sometimes referred to "negroes turned inside out."
https://history.howstuffworks.com/historical-events/when-iri...
The history site covers how people perceive the value of work has changed over the centuries.
Index of the history of the ethics of work/labor: http://workethic.coe.uga.edu/history.htm
Home page of this mini-site: http://workethic.coe.uga.edu/index.html
The Wikipedia page has lots of links and references about PWE.
> In 1998, the International Sociological Association listed this work as the fourth most important sociological book of the 20th century, after Weber's Economy and Society, C. Wright Mills' The Sociological Imagination, and Robert K. Merton's Social Theory and Social Structure.[3] It is the eighth most cited book in the social sciences published before 1950.
https://en.wikipedia.org/wiki/The_Protestant_Ethic_and_the_S...
The Republican party is explicitly against any government intervention to simplify tax filing for Americans, so it makes it hard for improvements as they currently control the government.
It also means its hard for Democrats to improve as well since removing any improvements in filing are some of the first things Republicans push to undo when the come into power.
After a recent post[0] suggesting the federal tax code was already online in machine readable form, my first thought was "could I write my own US tax-filing software?" But the answer is still no.
Paying taxes doesn't mean just paying federal taxes. Users don't want free Federal taxes software if it means they'll have to re-renter all their information into different software for their State taxes -- especially when more than one state is involved, such as for people who cross state lines for work, or moved mid-year. A tax service is a massive value add.
The "free" software you get to do your federal taxes will be no threat to TurboTax until the states are required to publish their tax codes in the same machine readable format as the feds.
[0]: https://news.ycombinator.com/item?id=45599567
Except people living in one of the nine states that don't have income taxes. They're laughing all the way to the bank.
> They're laughing all the way to the bank.
Laughing I suppose until they get their property tax bill, or pay incessant road tolls.
(Sorry, I clearly have an axe to grind.)
I lived in WA and NV and didn't notice either of these. I miss not having to deal with state taxes not to mention the 10% of my income that goes away to who knows what.
If you are high income, of course you don't notice differences in levels of regressive taxes on consumption (including real property taxes, which, while not nominally this, for most people end up as a—direct for homeowners and indirect for renters—consumption tax on housing) as you do levels of progressive taxes on income (which is why frequently the income-tax-heavy states with higher average tax burdens also have lower tax burdens at equivalent income levels for median and lower incomes.)
No but everything in WA costing 10% more than the sticker price is a pain in the butt, especially if you are a lower income individual.
I'm Canadian so I guess I was used to this and its now worse in California with state income tax as well!
Are the sales taxes generally higher in those states, which offset the lack of income tax?
> Are the sales taxes generally higher in those states, which offset the lack of income tax?
Sales and property taxes are often higher, but this (which shifts the tax burden down the income distribution compared to progressive income taxes) usually does not fully offset the lack of income tax; the no income tax states are generally low average tax burden states (but may still have higher tax burden at low-to-moderate income.)
Depends on the state, some have higher property taxes.
Higher sales tax tends to be regressive because it doesn’t tax money you don’t spend, nor does it tax things where sales tax doesn’t apply like buying assets.
Depends on the income tax you compare with.
My state is 9%, and it kicks in at under $20K. No state has a high enough sales tax to offset that income tax.
Concrete numbers: Say you and spouse collectively make $300K. That's a bit under $30K in state income tax. On top of that you'd pay property taxes (admittedly low).
Sorry Texas, but your property + sales tax isn't that high.
I’m curious what state that is.
Sales and/or property taxes are typically used to make up the difference. TANSTAAFL
I never understood why the Revenue can't provide a set of simple online forms for tax returns like India does. Heck, India provided Excel sheets with VBA script for many years, that produced an XML which can be submitted as tax filing. Tax filing is now a 15-minute affair for a salary-only income in India.
The complexity is a feature not a bug. If you have more complexity, you have more opportunities for loopholes. Those loopholes are currently used by those wealthy enough to hire creative firms to help them get through them and minimize owed taxes
If there’s one outcome I really hope from AI automating work, it’s taking away the advantage the monied class has in this regard. Then perhaps there’s less purpose for the complexity
Maybe the AI will create a level playing field and make the tax prep / loophole industry collapse.
Or maybe the free models will start responding with
""" It looks like you're asking for help with tax preparation. I recommend our designated AI tax service [link to service that asks you to upgrade your plan or pay a one-time fee]. """
They are operating free models at a loss now, but at some point they are going to have to turn a profit. At that point tax prep becomes a revenue stream for AI as well.
Using AI to do your taxes seems like a quick way to get into a bunch of trouble.
Not if the IRS verifies using the same AI. Actually, it’s probably twice the trouble.
>Actually, it’s probably twice the trouble.
Plus interest and fees (they can't call them fines because then you'd have rights), so call it triple to be safe.
Please don't allow a computer to guess, one token at a time, what you tax liability is or how to fill out the forms properly.
This is incorrect: the wealthy don't use loop holes. They use incentives explicitly enumerated in the tax code.
What else is an incentive for, but that the government wants you to use it?
Hell, Google got pre-approval from the IRS for their Dutch Sandwich tax structure.
Most poor people don't read the tax code. They should.
Most poor people don't read*
They should.
Of course, this is not to say they always are stupid or illiterate, it's again usually just another form of exploitation, they don't have (or feel they don't) time to read it.
Which is arguably explicit exploitation/enslavement - the Walmart door greeter doesn't have a difficult job, however their role doesn't allow them to do anything that would benefit themselves. I wouldn't care if they were reading their phones or a book, but noo... can't have the peasants educating themselves.
And they aren't paid enough, so when they return home, they likely don't have any time after needing to perform meal prep, taking a second job, etc.
The USA is a third world country in many respects.
~ Kerry Packer, before House of Reps Select Committee on Print Media, November 1991.
( https://www.youtube.com/watch?v=e97kq2XflKE )
It's still largely maximising what can be pushed through unintended loopholes.
They could still live side by side. You could still have a system where you have simplified filing where for 99.99% of the people you can just pretty much fill in one or two fields of what you made and something like that and even maybe get this data directly from the employers. That's how it works in Sweden. And then for the people who have complicated business, you could have a more complicated form where you need to hire a lawyer or accountant to do it. This is just assuming you don't care about whether or not there are loopholes for people. Like that's a political decision maybe more, because I guess the people defending them would say that there are good reasons they exist and you know wealth creation and so on. But it makes no sense to make it so complicated for people who have very simple lives where they have one employer who is paying them a salary and that's it.
My entire life (in the US) there has been the idea floated that our tax code should be simplified to the point where filing can be done on something the size of a postcard.
We absolutely could do that, but the government has no incentive to do so. At least in the US, taxes are a form of control, a source of power for those in charge, a political chip for elections, and a mechanism to further the wealth divide. Taxes are not primarily meant to fund our government, and definitely don't include goals related to making the average person's life easier.
This idea is "floated" by the exact people who make taxes complicated in the US.
Every time they insist they want to "simplify" taxes, they demonstrate that what that means is just another tax break to wealthy businesses.
The DOGE team shut down a simple tax filing system the IRS had freely made available.
It's republicans. Stop saying "Government" when it is republicans
Form 1040 isn't even complicated! But republicans have convinced millions that the IRS is going to black bag them for missing a decimal point somewhere.
Guess what! The IRS is not funded enough to care! They will send you an automated form saying "We fixed it for you, here's how much you owe/are getting back". You can even ignore that letter and you won't end up in prison! They just seized a couple of my state tax returns!
The issues you raise are important, they also aren't partisan. The specific system used for filing, while important, has nothing to do with how simply or complex our tax code itself is. If they want to make it possible for me to file half a dozen forms through an IRS-run portal rather than TurboTax, great but that doesn't simplify the tax law.
Both parties are responsible for the complexity of our tax code, how long they allowed TurboTax to run the show, and how poorly the tax revenue is spent.
Much of the complexity is to close loopholes. Many things in the tax code start out fairly simple, then people find ways to use them in ways that were not intended, and then the simple thing becomes complex as additional rules are added to try to fix that. This can iterate and what started out as a couple of sentences that most people knew what they intended becomes a few pages of convoluted rules.
>The complexity is a feature not a bug. If you have more complexity, you have more opportunities for loopholes. Those loopholes are currently used by those wealthy enough to hire creative firms to help you get through them
Agreed that the complexity is a feature but it's not for the rich ( though the rich will take advantage of it, and why not? ) . It's mostly for the powers that be. If there were a 'flat' tax ( and one could argue what constitutes a flat tax) the rich will be more willing to pay that flat tax.
I'd say complexity support a very large govt, keeping several people employed including accountants, tax software companies etc. It serves the parasite class.
> If there were a 'flat' tax [...] the rich will be more willing to pay
That's just because moving from progressive-taxation to a flat-tax reduces how much they pay!
The "simplicity" of the math done by their usual accounting firm that does their taxes for them is irrelevant by comparison.
_________
To illustrate why the burden shifts, suppose the nation of Elbonia needs a constant $540 to operate, and it moves from a progressive tax to a flat tax.
It should be no surprise that most of the Elbonian nobles are "willing" to see that change happen. Meanwhile, the peasants that are already living paycheck-to-paycheck have to plan how to cut back on luxuries like keeping their teeth.It's worth pointing out that the Treasury takes in tax revenues throughout the year. The sources of that income are:
50% Payroll Income Tax. 35% Social Security Taxes. 7% Business Taxes. 7% Excise Taxes.
70 years ago they were:
25% Payroll Income Tax. 25% Social Security Taxes. 25% Business Taxes. 25% Excise Taxes.
I think the priority is fixing this distribution to levels which were historically perceived as being more fair. The wealthy are one problem. The oversized corporations are the everlasting machine which drives them.
Excise taxes are effectively sales tax but only on specific products. This is less economically efficient than broad-based taxes unless the thing you're taxing is something you're specifically trying to discourage (e.g. cigarettes) rather than having the purpose of generating revenue, but since 1955 the government has become more inclined to ban things it doesn't like than tax them.
In a global economy higher business taxes just cause large international corporations to incorporate in a different jurisdiction, which gives them an advantage over smaller purely domestic corporations, which is bad.
Social Security is already taking in less money than it's paying out. Reducing the Social Security tax would imply reducing Social Security benefits, since that's where it goes, unless you're proposing a more significant reform of the system in general.
The size of corporations and the amount they're taxed are two entirely different things. Indeed, the tax code does a lot of things to encourage corporations to be larger, like taxing dividends and capital gains after corporate income has already been taxed, which creates a tax preference for leaving the money inside of an existing corporation rather than investing it in starting a new competitor.
> In a global economy higher business taxes just cause large international corporations to incorporate in a different jurisdiction, which gives them an advantage over smaller purely domestic corporations, which is bad.
This is the common wisdom. I doubt it. The legal system in the USA is worth paying for. If these companies really want to submit to European law, then, they're welcome to it. I don't think that loss actually hurts domestic businesses but helps the massively.
Companies are subject to the laws in all the places they do business. They pay income tax in the place they have net income, which is something that they control themselves.
Corporate income tax is essentially designed wrong. Property tax is where the buildings are, payroll tax is where the workers are, sales tax is where the customers are, corporate income tax is where the profit is. Which they just put in the country with the lowest taxes.
It's basically this: Employees in the US get paid $1B to design a product that employees in China get paid $1B to manufacture and then it gets sold to customers in Europe for $3B. The net profit is then $1B, but where is it? If the subsidiary in Ireland pays the subsidiary in California $2B for the design then it's in California. If they instead pay the subsidiary in Shenzhen $2B to manufacture it then it's in China. If they instead pay them each $1B then it stays in Ireland. And then the company picks based on whichever one has lower taxes.
There is no real way around this because in real arms length negotiations it would depend on which subsidiary has more leverage against the others, but in modern companies what that really comes from is the strength of the company's brand or customer lock-in as a result of patents or copyrights, since without them the profit would be negligible because there would be no barriers to competitors entering the market and causing razor-thin margins, but all of those things are easy to move into whatever jurisdiction you like since they only exist on paper.
So international corporations pay taxes in Ireland and purely domestic corporations pay taxes in California which puts the domestic corporations at a disadvantage when the taxes in California are higher.
To get accurate numbers you need to scale either the before or after numbers to reflect changes in the effective overall tax rate over the time period.
You also need to look at overall tax burden, not just federal. It used to be that the states levied taxes and did stuff. Now mostly what happens is that the feds levy taxes and piss it back onto the states in the form of grants to do qualifying stuff.
IDK how this distorts the percentages but it certainly does.
I disagree. This is a way of looking at _where_ the government funding comes from or it's a way at looking at the _share_ of burden by source. The overall tax rates don't actually matter in this case and only implicate how that share is distributed within the group.
The point I'm trying to make is businesses used to carry a more significant fraction of federal spending during a period where they had less overall influence relative to the citizen.
Now we're inverted. Businesses have excepted themselves from most of the costs leaving that burden to the citizen, but we live in a country where business needs are put well ahead of the citizens.
The bigger picture is what matters here.
Another issue is that super wealthy folks don't get their money from regular wages. They borrow money from banks using their assets (e.g., stocks) as collateral. They pay back the loan at relatively low rates. The borrowed money is not taxable income.
>That's just because moving from progressive-taxation to a flat-tax reduces how much they pay!
They would be more than willing to be flat taxed at their current rate because it would still save them the hassle and the stress and the uncertainty.
Now, it would likely reduce what they pay eventually, because if you flat taxed the whole populous at their rate there'd be a new government pretty quick, but that's not the point.
> That's just because moving from progressive-taxation to a flat-tax reduces how much they pay!
That's what everybody says but then you look at effective tax rates in real life and the highest ones are paid by people like doctors rather than billionaires because the complicated system is the thing that allows the billionaires to pay less.
Meanwhile you don't need a complicated marginal rate system to get a progressive effective rate curve. Just give everybody a tax credit in a fixed amount and then use the same rate for everyone. Here's your table when you do that:
These numbers, of course, assume that as in your example you need the average effective rate (by earnings) to be 30%. By comparison, for example, US federal receipts as a percent of GDP have been stable at ~17% of GDP since the end of WWII (and were dramatically lower before that). Your numbers would be more in line with what would happen if both federal and all state taxes (including e.g. property tax) were replaced with this system.> people like doctors rather than billionaires
That's not a progressive-tax brackets versus flat-tax thing.
That's a "having different rules for different ways of making money" thing.
> the complicated system is the thing that allows the billionaires to pay less
Something true of a parts is not necessarily true of the whole, and vice-versa. The reason billionaires pay less than we might expect comes from relatively simple factors, not because the tax-code is too complex for poor people to get the same result.
> That's a "having different rules for different ways of making money" thing.
That's the thing which is a consequence of the existing complexity, which in turn is a consequence of trying to do brackets by income.
A flat rate tax is you collect VAT on everything no exceptions, send everyone a check in a fixed amount as the credit to make it progressive no exceptions, and you're done.
Different marginal rates is oops, if you use VAT then rich people have poor people go to the store for them so you have to use income tax and track everybody's income. But some people get income from investments and then it's not realized until they cash out, which allows a bunch of fancy tax dodges, but trying to tax unrealized gains has a bunch of other serious problems like liquidity and valuation. Also, you didn't really mean to tax everyone's retirement savings, so now you need a bunch of stuff like 401(k) to undo the thing you didn't really mean to do, and now you have some more complexity. And it continues like this until you turn around and doctors are paying higher taxes than billionaires because billionaires have more resources to navigate all the complexity.
The numbers for Elbonia are unlike the US but you can use numbers to say all kinds of magical things.
US median income $75,000
top 10% $149000
top 5% $352000
Which is 203000 more, therefore half of the top 10% must earn $101500 less than $149000 to have an average of $149000 which is only $47500 which is 0.6 times median.
If you tax them 40% they have only 0.36 times median left.
See?
top 1% $749000 is 397000 more than the top 5%, therefore 4/5 of the top 5% earns $99250 less than $352000 which is only $252750 which is only about 3 time median.
top 0.1% $3312693 is 2563693 more than the top 1%, therefore 9/10 of the top 1% earns $284854 less than 749000 which is only 464145 which is only about 6 times median.
I don't know where all the money went but it isn't here.
I have no idea what you're trying to demonstrate with all that, it looks like a 1+1=3 Chewbacca Defense.
Moving from a progressive-tax to a flat-tax (with the same total receipts) will lower the tax-burden on one group and raise it on another. You don't even need numbers to understand it: It's the same as how leveling a see-saw will result in one end moving up and one end moving down.
___________
To offer a specific critique:
> top 10% $149000
Correct, $149,000 is the hypothetical income of a single person sitting in-between the bottom 90% and the top 10% of income. This means every single person in the top 10% earns at least $149,000 per year.
> therefore half of the top 10% must earn $101500 less than $149000
No no no, something has gone Very Very Wrong here.
It is literally impossible for anybody in the 10% to be earning less than the lowest-earning member of that group.
> I have no idea what you're trying to demonstrate with this... number-based Chewbacca Defense.
hahaha, I forgot to mention I totally agree with what you said.
> You've gone off the rails somewhere.
I'm glad you noticed :)
Ill demonstrate the jedi mind trick one more time...
Imagine 100 boxes, we ignore 90 of them.
The 10 boxes left have 149 on average in them.
if they had exactly 149 each it would be 10x149=1490
However, we are told 5 of these boxes have 352 on average.
How much is in the remaining 5 boxes?
If the boxes told about had exactly 352 each it would be 5x252=1760
If the remaining 5 boxes are empty the average would be 1760/10=176
176 is more than 149
See?
You can't call it a "Jedi mind trick" when the victim can't even tell what you want them to do. :p
Anyway, what does "sometimes you can bullshit people with bad math" have to do with progressive-vs-flat taxation?
> The 10 boxes left have 149 on average in them
> 5 of these boxes have 352 on average
"A portion weight more than the whole." -> "Uh, no."
The tax brackets are not what make taxes complicated. Knowing how to categorize different types of income is what makes taxes complicated.
The flat tax would not make tax preparation any bit easier. They only thing it would do would be to eliminate progressive taxation. In other words, the rich would pay less. The poor would pay more.
>The flat tax would not make tax preparation any bit easier.
there are many way to 'define' a 'flat' tax. My way would be a fixed sum. Not a fixed rate. ( yes the rich pay the same as poor) This would ofcourse have it's own if/buts but it would eliminate 90%+ complexity.
The ideal situation would be be no income tax and many other forms of taxation.
A fixed sum is impossible. It would have to be so low that everyone could pay it, no matter how poor. It's basically a proposal to eliminate government (meaning anarchy, chaos, and inevitably the rise of some new order that will, of necessity, go back to a more rational system of taxation).
> The flat tax would not make tax preparation any bit easier.
This is absolutely not true in the USA. Income from different sources is taxed differently.
Example: The forms distinguish between short term capital gains, long term capital gains, and e.g., income from government bonds is taxed differently at lower levels of government.
This is exactly correct. That said, I'm quite surprised how many people struggle to understand how progressive tax bands/brackets work. It maybe doesn't help that the (right wing) media often portray them dishonestly (i.e. claiming that a 50% tax band starting at $100k/year means you would pay $50k/year in tax if you earn $100k/year)
> portray them dishonestly
Tangentially, the same motivated-disinformation occurs with Social Security.
It's best-understood as an insurance-policy (OASDI is literally named that way) against dying poor and old/orphaned/disabled. With an insurance policy, it's normal for my month's premium to be spent on somebody else's current tragedy, it's normal for me to expect no cash if the Bad Thing never actually happens to me, and it's normal that there's no asset for me to pass on to my heirs.
However wall-street bankers can't make tons of profits competing under that model, so instead they try to trick citizens into misunderstanding what the model is. They want people to think it's a government-managed investment account instead, where every person is filling an individual bucket of "their" money that will someday be tipped back out for them.
With this deception, their job is much easier: They just need to say that they'll be a nicer manager of the accounts than the government is, because they'll give you more choices for managing "your" money. It's dishonest because the two things are fundamentally different in how they work and what they're good for.
AI will increase the complexity even more
It's so easy that one man creates an Excel 1040 every year. See https://sites.google.com/view/incometaxspreadsheet/home
The UK has online forms for this, even for businesses, but is moving away from this as part of "Making Tax Digital" - i.e. they are axing paper forms to doing away with the online equivalents as well.
Then again, most people here who have salary only income do not have to fill in a tax return at all - only if they have certain types of income (self-employment, capital gains or investment income) above a threshold.
I've been doing Self Assessment for 25 years. In the first few years it was fill in a colourful paper form which won awards for clear English etc. Nowadays it is online with many details pre-filled in. At the end you can download a .pdf that looks exactly like the paper form or not bother.
That's for personal tax returns. For businesses, the new MTD stuff is all through commercial partners.
Something like ~40% of US individual taxpayers only need to file a form 1040 [1] for their federal tax return.
Another large group will need that plus a small number of other forms, most of which will be easy to fill. For example if they are getting a tax credit to help with health insurance costs there is form for that. That one's easy to fill out because you will be mailed a report that contains the information needed for the form. The report is in a standard format, and the instructions will be of the form copy line X form the report to line Y of the form.
If your income is just salary plus some investment income from investments like mutual funds you don't have enough deductions to be worth itemizing [2], it generally is pretty straightforward.
[1] https://www.irs.gov/pub/irs-pdf/f1040.pdf
[2] In the US you have a choice between "itemizing" your deductions, which means you have to list all of them, or taking the "standard" deduction, which is around $15k for a single person and around $30k for a married couple. Around 90% of people take the standard deduction.
They do provide the forms, you simply fill them out. I did that every year without consulting any specialist or extra services. Much easier than in Europe. It was a 20min affair.
The tax system in the US is complicated, you've got different state taxes as well as the federal, for example if your kids go to a different state for school than you live, add that your partner might work in another state, maybe they have different relief taxes for disasters through the year. It might very well be a feature but it is complicated, and the more activities you have, maybe investments, a small business, multiple jobs. It becomes overwhelming for non accountants.
Sure, but what about the >95% of the population which doesn't fall under weird edge cases?
Why doesn't the US provide a free 10-minute online wizard for them, like plenty of other countries are already doing?
Even the complex cases fit into an overarching tool. Most people in the UK don't submit tax returns because they don't have any income beyond their salary. Even if you do, you then use the tool which asks you a series of questions like "do you have a student loan?" and "did you receive any dividend income?", then you have to fill in some next level detail if those are true. I'm sure there are people with weird tax arrangements that need to work outside of the wizard, but I'd wager it was less than 1 in 1000, and those people tend to have the money to pay for fancy accountants to do it for them.
You also only need to fill in a tax return if you have income (or capital gains) above a threshold. SO having some interest paid on a savings account etc or a small side business or selling an asset at a small profit above what you paid for it does not mean you have to make a tax return.
I'm not sure how it is in the US, but in Canada a huge amount of low-income benefits are directly tied to filing your taxes. Most Canadians experienced this in our college years when we got GST (our VAT) refunds due to being low-income adults.
Canada recently announced that they're going to go for automated tax filing and it turns out the biggest cost may not be implementing it, but that they'd end up having to pay out a lot more in benefits to low income people that don't file.
To be clear, i was talking about the UK.
> Most Canadians experienced this in our college years when we got GST (our VAT) refunds due to being low-income adults.
VAT refunds for people on low incomes is something we have in the UK. I think we should!
This is true for some European countries too. No tax filing is needed for salary only income. I don't remember when I filed my taxes last time.
Basically I only do mine in about 15 minutes, most spend on verifying what I actually paid for things. Because I go over of the basic deduction so I can deduct for workspace, internet and electronic equipment. But the workspace is going away so probably won't bother after this year.
Everything else is fully automatic.
This program was called IRS Direct File[1], and DOGE/the current administration killed it.
1 - https://en.wikipedia.org/wiki/IRS_Direct_File
Because it is (or was it the time this article was written) against the law. The company that owned the tax preparation software lobby to Congress to pass a law requiring that the IRS not provide a free and easy way for people to submit their taxes.
Many other countries also have complicated taxes and are able to provide a better user example to non accountants. The US isn’t special.
Many other countries have figured this out since the early 2000s, the US could do it as well if they wanted to.
Sometimes I think the most exceptional thing about the USA is exceptionalism.
Solutions to problems that are solved elsewhere are pushed back against, because "The USA is fundamentally different".
Other countries have states too. The UK even has a country with an entirely different legal system (Scots Law), but we still make our collection of income tax system simple.
A "complicated tax system" (if that is the root cause) is not something that is impossible to change. It is within the gift of the government(s) to change that.
The lack of appetite for change is the result of decades of lobbying for the status quo to continue.
A 1040 form, while intimidating looking, is trivial to fill out. Once you've done it a couple times, it takes about 5 minutes.
The only arcane bit is the law. The tax prep software knows which forms to use for which financial detail.
If the law were written clearly, there would be no need at all for any special software, you could fill out a couple csv files and send an email...
Even without the law, you are right, the actual flow of the tax prep software, for most people, is something a 16 year old could probably cobble together in an afternoon or two... however the problem then becomes how to provide a public service at low cost (to cover hosting/bandwidth costs) while govt funds are explicitly forbade to be used.
To me the solution is obvious - a third party non govt player that receives specific allotment of funding, no questions asked. However, see the rampant issues with lobbyists mentioned in the article...
It's become worse since 2017 when they changed the 1040 to make it "shorter." All they did was move everything to different forms so now it's an insane process of shuffling numbers back and forth across many forms.
"tax prep" isn't something I've had to ever think about for the UK system. I don't have to buy software, I don't have to pay anyone. I get my wage, it has my taxes taken out. That's it. I don't need to keep receipts, I don't need to work out how much mortgage interest I've paid, etc.
My individual situation is calculated, by the tax authority and rolled into a "Tax code" which acts as the personal allowance. This then feeds into payroll which pay you net of tax.
If at the end of the year, the tax authority (not you, this is automatic without a form being filled in) spots an over or under payment, they adjust your tax code for the next year to recoup or refund the difference. No cheques in the post, no forms to fill in. Just automatically happening in the background.
Meanwhile for the US, I need to fill in 2555, 1040, and other forms. These aren't "5 minutes", they're slow, and more importantly error-prone, as they get you to add up different numbers rather than just asking for the information needed.
No human should ever have to answer the series of questions ( this is legit, from the current 1040 ) :
Where Line 22 is: Line 21 is of course: And 18 is: Where 17 is: Where that is an entirely different form.The only purpose I can tell for this ridiculousness is to give scope for people to make mistakes.
A form should collect raw information, not put the burden of calculation shouldn't be on the form-filler in a world where computers exist.
The data is already on the form. What purpose can that solve except opening up a possibility for someone to accidentally commit tax fraud?
You're missing the point suggesting it should be "a couple of CSV files". No, it shouldn't be any filing at all.
Demand change, demand simplification of the tax system, and demand zero-filing solutions for regular employees.
> Meanwhile for the US, I need to fill in 2555, 1040, and other forms. These aren't "5 minutes", they're slow, and more importantly error-prone, as they get you to add up different numbers rather than just asking for the information needed.
For the many forms, yes of course it takes longer. However, from the W2 to the form, if you are familiar with both, it is many steps to be sure, but the process itself doesn't take long.
I don't mean to hold up the 1040 as some shining example of how to write a form.
Merely, the steps look involved, but usually boil down to several of the same number in multiple boxes, and a couple additions/subtractions. If you do it purely by hand, there is a high chance for clerical error, yes, with automation as simple as a calculator, it's much simpler.
You usually get the 1040 as part of the "preview" of the tax prep software. When you compare the actual steps involved in the 1040 vs the overly long, overcomplicated process in the tax software, it's obvious that there is a large amount of fluff involved.
Sure, there are some credits it might remember that you might not, but that's about the only reason I would think tax prep software is better here... however this could be accomplished by something as simple as a checklist provided by the govt...and if you are paranoid you could employ a lawyer to double check that every option has been explored (how do you know the tax prep software know every credit from this current year? You don't, so, what exactly are you paying for?)
I half agree with you in that the UK makes the tax system administratively easy for most individual tax payers.
That said, i think the system as a while is far too complicated. The application is simplified, but the rules are far too complex.
We got pre-calculated returns as an alternative in the early 90's, by the time I got my first real job in the early 00's everyone used the pre-calculated one and just made changes as necessary. The first years I got my tax return in the mail and I think a few years I had to mail back a signed copy, but these days everything is digital and if you don't have to make any changes you don't have to do anything at all.
Back then you also had to physically deliver your tax deduction card to your employer so they could deduct tax correctly, but these days that is also digital and salary systems just fetches the current deduction card before running salary jobs every month.
This american exceptionalism is such a meme. You aren't special.
The propaganda must be pretty special to have you so convinced though.
It's a combination of diet and education.
If you want to understand the first, take McDonalds - you probably have one and don't think it's that bad? Imagine everything on the menu is either 10 times sweeter (sickening), or made with wilted products on the cusp of expiration, and that's "standard" food.
It's so bad, many Americans hate anything "healthy" because any time they are exposed to it, it's not much better than pigs swill. So there are many who will only eat meat, because that is harder to make taste poorly, despite being even more disease riddled (there are almost no standards for meat inspection).
So then, you are constantly sick, low energy.
And then education - suffice it to say there are many communities where it is seen as "reasonable" to believe in nonsense like "flat earth", and many struggle with basic things like addition. It's a wonder we aren't illiterate too... I suppose it's too useful to be able to read about products to buy them, so we can at least all read the adverts...(for now)
I know French people who live near the Swiss border and who file their tax returns in a matter of minutes because all the information is pre-filled via their employer's income statement and their bank.
They are two different countries, and Switzerland is not a member of the EU.
When French bureaucracy is simpler and more efficient than your tax collection system, you have a problem.
You are not special, other countries have complex tax systems too and have figured it out, but you just refuse to and make excuses
They do, IRS Direct File: https://directfile.irs.gov/
You mean they did, but the Trump administration and GOP passed a provision to begin eliminating the program earlier this year.
The whole point of the article is to answer to that question.
They were rolling out a free service over the past few years that was getting solid reviews and plenty of people used[0][1]. One of the top priorities[2] of the Trump administration and DOGE was to prevent that and it has been since shut down[3] and partly open sourced[4].
0: https://www.vox.com/future-perfect/24071005/irs-direct-file-...
1: https://www.investopedia.com/early-reaction-to-the-new-irs-f...
2: https://apnews.com/article/irs-direct-file-musk-18f-6a4dc35a...
3:https://www.cnbc.com/2025/07/30/irs-chief-says-agency-plans-...
4: https://github.com/IRS-Public/direct-file
They do, it's called free fillable forms. If you have salary-only income that's about how long it takes.
https://www.irs.gov/e-file-providers/free-file-fillable-form...
Tax prep software exists for people with more complicated tax situations and people who are unwilling to add and subtract a couple of numbers. The 1040 form is not complicated and anyone can use it to file their taxes for free.
> I never understood why the Revenue can't provide a set of simple online forms for tax returns like India does.
Did you read the article? The TL;DR summary is that the US government has proposed doing this in the past, but has been lobbied against it by companies that seek to profit from software to help prepare tax returns.
the UK seems to be going in this same bad direction now "As part of our journey to modernise and digitise our filing routes, all accounts must be filed using commercial software from 1 April 2027." https://changestoukcompanylaw.campaign.gov.uk/changes-to-acc...
you used to be able to do this yourself on the gov website for free
That's company taxes only, not individuals, a huge difference
yeah that is true, but still really annoying for the tiny companies I talked to
Tell me about it! The bottom tier subscription services are also subtly crippled to make filing MTD tax returns difficult. eg. Xero's lowest tier doesn't let you easily add cash payments (without jumping through hoops for each payment).
It is insane how the UK seems hellbent on implementing the things that are shit about the USA
Eh, that’s companies rather than individuals, and while it’s still objectionable it’s not quite in the same league.
If you’re running a company you probably already have an accountant, and they’re probably already using one of those pieces of software. Or you’re using something like Xero, which is already on the list.
agreed it's not the same league, but it's still annoying for tiny companies that don't have much revenue
Paying to file taxes, and then getting you tax refund as an Amazon gift card -- that's very American :)
What? I just googled, and found it is actually a real thing. Holy molly! Has Amazon become a federal system for distribution of money and goods? What next? coupons for burgers, Netflix credit?
I assume this is done by the company, not the IRS.
But where is the company getting the refund from?
In the US it's legal for the person filing the taxes on behalf of another person to collect the refund for them.
This allows tax prep companies to give people 'instant refunds' (essentially loans for the expected refund amount) so people don't have to wait weeks for the IRS to send them a check in the mail.
The IRS only pays out via check or direct deposit but the company who did your taxes can pay out in cash, gold, or pokemon cards if they want to.
It's also awesome how the tax prep companies can advertise the cost as nothing, because you'll make it up in your refund. And they'll happily let you pay for their service using the refund.
So much fun :)
I think its usually like a person is due to receive a $1,000 refund and the company they did their taxes through will give them the offer to immediately get an Amazon gift card for $800 instead of waiting for fed and state refunds to hit their bank accounts.
It reminds me of the movie The Fifth Element with all the company advertising everywhere, seemingly tied into government operations.
Boring dystopia.
Politicians cannot write loopholes that benefits only their doners if the tax code and tax filing is simple. Period.
Take corporate/dark/unlimited money out of politics and watch this problem (and many other) disappear.
AMEN! How is that taxing is easy, computed by govt yet people and rich people keep evading taxes, not showing taxes, finding workarounds through other orgs to reduce tax profile but as an individual you have so many restrictions
It seems their business model is more existentially challenged by LLMs these days. I’m waiting for the regulations preventing AI being used for taxes and legal counsel
Edit: This is timely being on the homepage: https://news.ycombinator.com/item?id=45601230
There are many things I would trust an AI with, but my taxes are not one of them.
Certainly not to do your taxes, but they're useful for tax questions, as long as your verify the responses.
Taxes are actually not a bad problem for AI, because a lot of the final calculations can be easily verified/sanity checked. The AI won't be able to get away with any math errors, the issues you'll likely see are incorrect categorisation of income or suboptimal deductions. The substeps like categorisation shouldn't be too difficult to manually verify
Don't use AI for tasks where you don't have the qualifications to verify that the result is correct.
The problem is if you need to verify everything you might as well do it yourself.
I'm not convinced an AI will ever know how to distinguish a personal and business expense from a CSV dump of your credit card too.
If you're going to go down the rabbit hole of creating a CSV, you can already parse and categorize it pretty easily without AI. I've built and have been using https://github.com/nickjj/plutus for a bit now and I've gotten quarterly taxes down to less than 10 minutes.
We've taken the one task that computers are inherently good at and somehow made it worse.
I agree, tax prep will probably be done by AI soon, for better or worse.
On the other hand, there's a broader business model here: lobbying to obfuscate mandatory government paperwork so that a 3rd party service is practically a requirement. It's not difficult to see AI companies expanding into that industry.
Literally the only reason to use "AI" (it's not actually AI so we should stop calling it that) is to inflate the profits of LLM companies.
We already have reliable systems that do these things in the rest of the world, not to mention TurboTax already does it in the US without LLMs.
this seems to fall into the category of Intuit offering AI (RAG/MCP + tuned base model) and not people directly going to chatgpt for half-baked advice (and still needing to fill out all the forms and perform hand calculations themselves)?
They are not as harmful as some other corporations, but for some weird reason I hate such parasites on our society much more than some bigger offenders. And I'm not even from USA :) . How do you all tolerate this?
Few people give a crap because a two figure sum for tax prep once a year is just about the smallest thorn the government and government adjacent or intertwined industries put in the side of the average person even if it's arguably less justified than some of the other ones.
Intuit emailed me stating that Turbo Tax 2025 will not install on a PC running Windows:
"We’re reaching out to provide an update on TurboTax Desktop software for tax year 2025. After October 14, 2025, Microsoft will no longer provide software updates, technical assistance, or security fixes for Windows 10 operating system. Because security is a top priority for us, TurboTax Desktop software for tax year 2025 onwards will not be compatible with Windows 10 operating system.
To use TurboTax Desktop software for tax year 2025, your computer will need to run on Microsoft Windows 11 operating system. You can also consider switching to TurboTax Online, which will work on any supported browser (available December 2025)."
Edit: Windows 10
I do not work here so this is just tip. I have used freetaxusa for years amazing including schedule c. Since in Texas truly free haha!
I wonder why there has never been open source tax software. It seems exactly the kind of thing the community would be good at. I imagine it would be hard for very complex taxes. But for the 60% that have simple taxes, I don’t think it should be unmanageable.
Is it a matter of liability? Like I could definitely see a big issue with mistakes — even if it was just operator error.
https://github.com/IRS-Public/direct-file/tree/main
Fast moving regulations and legislation. You need both a legal and developer team, at least to follow and implement things as soon as they become the law.
Even the revision of yearly variables is a considerable task.
And often the yearly variables aren't published until a few weeks or months in advance, so it's a scramble every year.
I know a couple of professional accountants. They have yearly regular overtime periods. It's hard on everyone.
Many laws also exist specifically to keep industries afloat. The complicated tax code keeps many lawyers and accountants in business.
> The complicated tax code keeps many lawyers and accountants in business.
At least, some of the complications in these are not intentional, but result of centuries old evolution of these systems.
Maritime shipping uses centuries old systems to handle costs in shipping accidents for example. I forgot the exact name of the system, but while the method is extremely fair, it's equally complicated. The whole premise stems from "This ship has sailed because you wanted me to carry your cargo", and becomes something mind boggling.
I'm sure there are some steps taken to keep people busy, but chalking up everything to it is unfair and wrong.
Fair points, but there is hostility to fixing a lot of those historical rules for the same reasons. Long-standing business practices is another can of worms, especially ones as international as shipping.
Of course, this is a very complicated matter. I just wanted to point out that the issue has two sides, and it's not clear where a side ends and the other one starts.
I have heard and seen enough horror stories about employee pushback on different scales against automation and simplification.
Open Tax Solver has been around for years and is still maintained and updated each year.
https://opentaxsolver.sourceforge.net/
The UI leaves a lot to be desired, but it does work and I used it one year.
> Is it a matter of liability?
No, government builds all kinds of IT systems for a wide range of sensitive functions, and they certainly have the means to build or fund an open source tax filing system.
The reason they don’t is twofold: A) massive corporate interests lobby the government to ensure projects like this don’t happen, and B) building functional infrastructure for the people goes against certain political narratives that government is useless and wasteful. If you campaign on the idea that government is inept and wasteful, you’re not likely to support projects that undermine your platform.
Unfortunately TT is [still] a must for expats. While my new home country makes things extraordinarily simple, not only for the free online filing, but also for an amazing assistance one could get from the local tax services (first year I reached out to them, in the office, they had their expat expert fill out the taxes online, in my account, in front of me, so I could learn on doing them on my own, from then on), filing to avoid double taxation, with uncle Sam, is stil a PITA
Americans are the proverbial frogs in the pot. They've been ratcheting up the heat over the last 30 years, the first signs of danger are well past, now its 300mm people being held captive by abusive leaders and insanely greedy profiteers.
This entire story exemplifies everything wrong with the USA and its form of corporate run government. Socialize the risks, privatize the profits and foremost, let the foxes not only guard the henhouse, give it to them!
World, if you're listening. We need a pepperoni pizza.
I think it would be great to just have the IRS website list all reported income. Free automated filing is amazing, but if that is too large of a political battle just making this income information easily accessible would be a giant first step.
In Poland since 3-4 years tax form for regular employees is automatically filled and submitted. Before then many NGOs filled them for you (directly or indirectly) for 1% of tax (I think avoiding loss of 1% motivated govt to make this automated system).
CashApp is free for both federal and state. Have used it since its Credit Karma days and has worked fine.
Very interesting. I'll give that a try..
If it’s free, you’re the product.
Reminder: FreeTaxUSA is a great alternative, I've been using it to file my taxes the last 3 years and plan to use it if I can this year. My situation is made harder this year by my wife starting a business.
https://www.freetaxusa.com/
It's not quite as good as turbotax, but turbotax also had it's issues. I've used it the past couple years though just to stop feeding turbotax.
Agreed, it's not quite as good as TurboTax, I'd say for my use it is 80-90% as good. But it is kind of important to me to avoid TurboTax because of the lobbying they do to keep us from just having the IRS tell us what we owe and be done with it.
Why isn't there a non-profit doing this work?
If this is as big of a deal as people claim, surely a non-profit could have written a free tax filing app and just made it available to people?
Does TurboTax have any kind of regulatory moat / AT&T style monopoly?
I mail in a paper form because F TurboTax.
The IRS does have a free filing service called Direct File: https://directfile.irs.gov/
The Trump Administration is trying to get rid of it, but its been so successful and so well-rated that they're having trouble doing that.
I looked this year and the site went nowhere. But now seems to be up. Not sure what happened.
But I just went through the eligibility steps and it requires id.me verification! Big nope. Mailing a paper form does not. Of course Uncle Sam figured a way to fuck it up.
Tax shouldn't even have to be handled by anyone. It should be part of the currency itself.
Around 2018, my accountant retired and sold his business to some other firm. That year, the other firm had some newbie cpa do my taxes. If I had blindly gone with his effort, I would have had to pay thousands of dollars. The problem is, he made a huge mistake because he didn't listen to what I had told him regarding a step up cost basis on inherited stocks. I fired them the instant I saw that issue. Then I was stuck with nobody to do my taxes! I used TurboTax and got it done myself and actually received a small refund that year. And no, nothing was done fraudulently, it's just that I knew the details of our situation far better than any cpa who refused to listen to what I told him or was too "green" to know what I was talking about (unforgivable, imho). I've used TurboTax ever since then. Yes, I know it sucks in many ways, but the thing is, they bailed me out and saved me thousands of dollars over the years for hundreds of dollars in fees.
(2019)
Some previous discussion:
2021 https://news.ycombinator.com/item?id=26060414
2019 https://news.ycombinator.com/item?id=21281411
And some others, macroexpanded.
TurboTax’s 20-Year Fight to Stop Americans from Filing Taxes for Free (2019) - https://news.ycombinator.com/item?id=34594832 - Jan 2023 (1 comment)
TurboTax Tricked You into Paying to File Your Taxes (2019) - https://news.ycombinator.com/item?id=26102695 - Feb 2021 (306 comments)
TurboTax’s 20-Year Fight to Stop Americans from Filing Taxes for Free (2019) - https://news.ycombinator.com/item?id=26060414 - Feb 2021 (199 comments)
FTC Is Investigating Intuit over TurboTax Practices - https://news.ycombinator.com/item?id=24409093 - Sept 2020 (194 comments)
IRS Reforms Free File Program, Drops Agreement Not to Compete with TurboTax - https://news.ycombinator.com/item?id=21923220 - Dec 2019 (448 comments)
TurboTax’s 20-Year Fight to Stop Americans from Filing Taxes for Free - https://news.ycombinator.com/item?id=21281411 - Oct 2019 (447 comments)
TurboTax to charge more lower-income customers - https://news.ycombinator.com/item?id=20461169 - July 2019 (81 comments)
TurboTax Uses a “Military Discount” to Trick Troops into Paying to File Taxes - https://news.ycombinator.com/item?id=19994118 - May 2019 (42 comments)
Listen to TurboTax Lie to Get Out of Refunding Overcharged Customers - https://news.ycombinator.com/item?id=19870242 - May 2019 (44 comments)
TurboTax and H&R Block Saw Free Tax Filing as a Threat - https://news.ycombinator.com/item?id=19810981 - May 2019 (143 comments)
Congress Is About to Ban the US Government from Offering Free Online Tax Filing - https://news.ycombinator.com/item?id=19613725 - April 2019 (696 comments)
TurboTax Hides Its Free File Page from Search Engines - https://news.ycombinator.com/item?id=19758126 - April 2019 (262 comments)
TurboTax Uses Dark Patterns to Trick You into Paying to File Your Taxes - https://news.ycombinator.com/item?id=19718284 - April 2019 (274 comments)
How the Maker of TurboTax Fought Free, Simple Tax Filing (2013) - https://news.ycombinator.com/item?id=19392673 - March 2019 (253 comments)
How the Maker of TurboTax Fought Free, Simple Tax Filing (2013) - https://news.ycombinator.com/item?id=13853150 - March 2017 (439 comments)
How the Maker of TurboTax Fought Free, Simple Tax Filing - https://news.ycombinator.com/item?id=5443203 - March 2013 (330 comments)
Jeez, 13 years of history.
Yeah, there's been a lot of talk about it for years.
What's especially sad is that some major progress was made toward having a free official system just a few years ago, but now it's being torn apart.
https://www.pbs.org/newshour/politics/irs-moves-forward-with...
https://home.treasury.gov/news/press-releases/jy2629
https://apnews.com/article/irs-direct-file-tax-returns-free-...
Taxes are free to file. Just fill out the form(s) and mail it in. I find it way easier than using crap software. No logins, no ads, no spying, no losing my progress. There’s literally instructions for every box on the form.
The problem is how ridiculously bloated and inefficient the US tax system is. Companies see that as a possibility for exploitation and wet their shirts with drool.
One time I wrote a screed into a turbo tax feedback form on how they are an awful business and no one responded except that they refunded my money.