the deep cynicism here is how people think Turbo tax is doing a pubic service by making taxes easier and cheaper, that's how effective their marketing is. Convince the public there is a problem that only said company can solve.
Of course, you shouldn't need to pay anything. That is a false dichotomy.
The way tax returns are done is deliberately abusive to citizens. They'll chase you down if you owe them money, but not if they owe you. In that case you need to jump through flaming hoops every year to appease them. It's not a coincidence.
Not entirely true. I have received money back on taxes that I filed with an error that resulted in my overpayment. So in a simple case, yes they will return money they owe you. But I would not expect them to file an optimized return on your behalf and you probably already know if you should be doing this yourself.
The beauty is you don't. If you go to HR's website they basically say "click here to file for free!", and "click here to make an appointment at your nearest office"
For the last 9 years, I've been filing tax returns on money I've earned abroad: no 1099 and definitely no W2. One year somehow they blew away my foreign tax credit and said I owed $30K (note: they were really nice about it and I eventually was able to fix the mistake).
Taxes get complicated REALLY quickly as you move beyond single W2 earnings.
With stocks, capital gains, dividends, write-offs, company you need to handle these manually and the government doesn't know your write-offs and all sources of income.
For a W-2 employee taking the standard deduction, perhaps.
The IRS cannot correctly calculate what the typical small business owner owes, what the typical real estate investor owes, what the typical upper middle class family owes, because they don't have all the information available to them.
The IRS probably has enough information to file 1040EZs for most people, but certainly not enough for 1040A, 1040, or most business returns.
So, of the 293 million returns filed, about 18.6 million or 6.3% of them could be auto-filed by the IRS. About 1 in 16 total returns and about 1 in 8 personal returns.
To me, 6.3% (or even 13%) is a far cry from "all the typical cases". They can mostly handle one particular case; that might be the case that you personally have; I have no objection to them offering that as a service. Just don't be confused and think that that that's all the typical cases.
Great analysis. One thing to add though - some of these people have to also file state returns. Which in TurboTax pretty much automatic, but without it it'd be separate return which has to be filed separately - which means same work as for Federal, so people would still need something like TurboTax - unless also each state that has income tax makes their own system too.
I do expect that would happen over time (even to the extent that states would change their tax laws to align with the federal auto-calculated tax systems).
I support most systems that would take the burden and aggravation off the American public. I also worry that it would make it even more opaque than it is today. (I don't believe we'd have the current rate of taxation nor spending if we hadn't instituted a payroll withholding scheme and Americans had to actually save and write a check to the government each year.)
No. How would they know how many charitable donations you made? How would they know how many miles you drove for your business? How would they know how much you spent on travel for your company? How would they know how much you paid for the raw materials for the products you sold? Or your business utilities, rent, etc? How would they know your unreimbursed medical expenses or casualty losses?
The issue here is that taxes have been over complicated with deductions. If it was just simply based off earnings and there were no deductions it would be simple.
Obviously taxes would need to be reduced if all deductions were removed. I for one would love to see a zero deduction tax law, and simple validation of earnings.
I think you're still stuck on W-2 employees (which is a pretty large and common case, I admit, and I'd love to see that simplified).
You will always need accounting for businesses (IMO).
Suppose you ran a lemonade stand. You bought some equipment, some raw materials, you used some utilities, you used some space, you bought a banner and some flyers to advertise your stand, you hired a lawyer to help set it up, you bought a business license, you bought cups and napkins, you took in some receipts. Let's presume you turned a profit.
On what figure should you pay taxes? The gross receipts (every dollar you took in)? Or just the profit (receipts minus expenses)?
And that's just a lemonade stand; imagine the complexity of a larger scale business...
In terms of businesses, I hold somewhat controversial belief that businesses should not be taxed. Their employees are taxed, and people recieving dividends are taxed. By not taxing businesses, we'd also balance out the unfairness in the system today, where large companies are able to offset all profits with deductions, and small companies which actually pay quite a bit. The point is to bring fairness to the tax system.
I don't know that I agree with the fairness points you raised, but from a sensibility standpoint, I like the idea. Corporate income tax is only 9% of total federal receipts, so it seems like we could make that up without incredibly burdensome changes. It would also make the US competitive again as a corporate domicile for multi-nationals (though without taxing them, it's not clear how advantageous that would be).
I do worry that it would raise other forms of exploitation of loopholes though. There would be less pressure to report payroll expenses (decreasing compliance and decreasing payroll taxes as anyone you pay off the books is cheaper out of pocket for you per dollar they receive) and I suspect we'd see a lot more people not taking large salaries at companies they control but rather funding their lifestyle needs with perks and loans from the company, the repayment of which would not be taxed.
Payroll taxes are 1/3 of federal receipts; any significant decrease in compliance there would perhaps be more damaging than losing the corporate tax income directly.
Yes, I think there is an enforcement and compliance problem. I think that gets into some serious details about a plan that would actually work. Perhaps extremely steep penalties for anyone caught cheating would be enough, but you are right that people would try to hide their revenue in the corporation. But aren't the extremely rich already doing that?
The entirety of economic entities is not conveniently split between "employees" and "businesses paying employees". Even aside from disabled, burnouts, unemployable, trust funders, criminals, barterers, and simple parasites, there exist sole proprietors, partners, and individual contractors, whose income never gets distributed to any employees.
Your hypothetical "fair system" will have to have policies and regulations in place to deal with all of these situations.
As far as I can see, the only opportunity for real fundamental simplification is to completely drop all taxes on income, and substitute consumption-based taxes. And even that is not as simple as it sounds (how does it deal with barter, for example?).
That would only be reasonable if you think that only poor and middle-income people should pay taxes. Everyone else would be able to opt out via a series of corporate shells.
It takes a lot more time with Turbotax than H&R Block or even just handing stuff over to a regular accountant who does tax preparation. The obscenity of paying $1000 for small business tax preparation was not moderated by the even more obscene alternative of spending four days with TurboTax (or any other software for that matter).
But at least TaxAct is a small company that's been around for about as long as TurboTax and I think their business model is far more ethical than Intuit, who are doing the absolute worst thing by basically legally bribing elected officials to keep tax preparation complicated enough that they are a going concern.
I use TurboTax Self-Employed and it works pretty well for me. It handles everything I can think of for my 2 LLCs. It takes some time though. If you have all your expenses already worked out, then it's not too bad.
HR Block's online filing system is pretty good. I have used it every year since 2005. I only started recently in the past few years paying for the upgraded services(about $50) due to mortgages and other income.
