Here's a fun example of why the government should maintain its own databases and use them to pre-fill your taxes.
This year, the state sent me a letter claiming I had paid zero taxes in 2010. They said I had to pay 100% of my tax liability right away or face liens, etc.. Of course, this was patently untrue--my employer had actually withheld more than my total tax liability for 2010. (I know this because I still have my 2010 W-2). So I was entitled to a refund for 2010, but the state was saying I owed them the full amount, plus penalties.
After contacting the state about this, they said the problem was that my W-2 form had likely become "detached" from my 2010 return.
So apparently, the state relies on a paper copy of your W-2 attached to your return to determine whether your employer has paid them the withheld taxes. If they can't find the W-2 you send them, they assume your employer didn't pay them anything on your behalf. Given that employers are already making electronic payments each quarter, why can't the government just derive its W-2 data from that? (I know, I know--they're probably not collecting that data right now. But the point is they could do it as part of the quarterly payment process.)
EDIT: Another funny bit to this story. I asked the state to confirm that my employer had indeed paid the amount reflected on my W-2. I figured that if the error was on my employer's end, I could take it up with them. But the state refused to say one way or another, citing confidentiality.
Most likely your employer is withholding your taxes with the wrong SSN, or quite possibly, not actually withholding them at all (keeping them out of your check, but not sending them to the tax authority). This happens fairly frequently with employers that are heading down the road to bankruptcy. But if your employer is still around a year later it's probably the wrong SSN.
No, the state employee said that the sheet of paper was probably quite literally detached from the rest of my return.
My (former) employer is an extremely reputable organization that has been around for over a century and probably will be for another one. I even checked with their HR department to verify the error wasn't on their end.
We fear bureaucracies, if they became efficient, would become efficiently brutal and callous. We don't want them to become good at being brutal and callous. Therefore we should fight against efficient bureaucracies in favor of brutal and callous inefficient bureaucracies. And if their inefficiencies make them seem brutal and callous, that's just all the evidence to know that making them more efficient would lead to even more brutality and callousness.
Eugene McCarthy didn't say ineffecient bureaucracy was brutal an callous. It's just annoying and maybe callous. That's the point. Also, um, you know who had an efficient bureaucracy, with computers and everything, in the 1930s? Yeah, --Godwin'd
I've wondered the same thing. This year the state asked me to supply a paper copy of my W2 to verify my electronic return submission. Are things so messed up at the state level that they don't know who paid what and when? Why couldn't they just look up in their database that says I paid $X and it matches box 3 on form Y. For extra credit they could do this using this new technology called a computer.
I don't see anything on there where the employer would break down the payroll tax by employee. Does anyone know if there's some other mechanism for this? Do employers send all W-2s to the IRS?
I'm pretty sure that at least in California this isn't true. IIRC if your taxes are normal enough (low enough amount, just a W-2) you can actually login to the California tax site and it can automatically compute your refund for you.
I think my girlfriend used this once - I may be remembering incorrectly though.
It's not in the government's best interest to make it so they get less money.
If they made everything efficient, I would imagine they would lose lots of income.
It would also put may people out of jobs and many of those same people decide on these efficiencies.
I wish our government could be run more like a lean startup rather than a large corporation with a near unlimited supply of money (part of which is my money).
I just wish there was more accountability and less waste. There are plenty of big companies that aren't pissing away money left and right.
This is why I oppose most major government programs like health care: Based on previous history, I just can't trust the government with something as important as my life.
It's not clear why you would trust a private corporayion either. Government is made of people, and reflects the society it exists in. By your logic, you should be in favor of self-provided health care. (Maybe you are. Maybe that is the best way. )
How would they lose income? The most efficient tax collection would eliminate fraud and audits and eliminate underreporting, far more of an issue than poor and middle class people claiming deductions.
As a developer who's married to a CPA, here are my thoughts:
1. Taxes are a hard problem. Besides basic W2s, There are a lot of deductions to know about, and it's hard to keep track of all of them.
2. Depreciation schedules. They vary from item to item, and there's a bit of a grey area on what you can use, and what you can't. What can have bonus depreciation?
3. Calculating cost basis is too damn hard for most of us. Not just stocks, but partnerships as well.
4. When can you take a distribution from a business? How many times is that money taxed?
5. Add another 50 use cases, one for each state.
6. How do the states interact for individuals with diverse activity? Easily 2^50 cases here, and my gut say more like 50!
7. Foreign activity. Good luck with that.
The bottom line is there still is enough complexity that this needs to be done manually. Not to mention there are a lot of things that are legitimate judgement calls, and vary from accountant to accountant (or auditor to auditor when dealing with the IRS).
So, that's why robot's aren't doing my taxes any time soon.
That's why robots aren't doing your taxes. How about for the vast majority of Americans who have one job, no business ownership, no foreign income, no equities trades, a very simple IRA or 401(k), zero or one spouse, zero to n dependents, and possibly a mortgage?
1040EZ should be replaced with 1040AUTO: at the end of February you get: what we've already had submitted by your employer and bank(s), here's the precalculation: sign here and check off the agreement box, or check the complication box and file the appropriate form in April.
Don't let the best be the enemy of the good enough for most people.
In France I basically go to impots.gouv.fr, click, click (identify with govt rooted personal SSL cert), double-check pre-filled revenue values, add whatever optional specificity I need, click (sign with SSL cert), done. It takes me ten minutes, tops, and ack goes straight in my email inbox.
Tax payment could not be simpler: 1. auth 2. select tax to pay in list 3. click pay
It's honestly awesome (although it requires a Java plugin for digital signing) and works on all reasonable OSes and browsers.
It can be slightly simpler: in the UK the common case is that you don't need to do anything at all, and the taxes are automatically deducted by your employer. (There are circumstances where you need to send a tax return, but they are the minority: http://www.hmrc.gov.uk/sa/need-tax-return.htm).
Too simple means there probably isn't much flexibility (IE: you are giving a ton of money to the government with little to no possibility of deductions).
What's flexibility good for? The government needs a certain amount of tax revenue to run; either they don't get that revenue, or the average tax rate is at a certain level, after all the "flexibility" is taken into account. What's more, the amount of tax revenue the government needs is lower without the deadweight loss of a good portion of the IRS's 106,000 employees, and the economy doesn't suffer the churn of seasonally employed accountants.
Someone running a company certainly should have deductions. It's this type of thinking that got 10 of the states in the US to tax you on gross revenue rather than net profits. To this day, people defend it, even though I know of at least 5 restaurants that when out of business shortly after this went into effect.
"The government needs a certain amount of tax revenue to run;"
How about we get exact numbers and when we have paid enough in taxes, we don't have to pay anything more? The problem is that there is no accountability with our money. The amount the government needs in taxes will always be more than what we actually pay.
"either they don't get that revenue, or the average tax rate is at a certain level, after all the "flexibility" is taken into account."
I would gladly have the flexibility taken away if the amount of taxes we pay makes it so everyone is paying the lowest possible amount and we don't really need these deductions. Most governments have this reversed. If you don't take the time to find deductions, you will be paying more money than you need to to the government.
Under normal circumstances, if the other party didn't give this money back, it would be considered theft.
"What's more, the amount of tax revenue the government needs is lower without the deadweight loss of a good portion of the IRS's 106,000 employees, and the economy doesn't suffer the churn of seasonally employed accountants."
Am I supposed to feel sorry for employees whose sole purpose is to find ways to take more money from me? The IRS is a ruthless organization. If you make a mistake, the IRS charges you compound interest on top of penalty fees. If the IRS makes a mistake, you might get your money back.
Every deduction you might want to fill can be filled in as you wish in the process as the form allows that. Every possibly relevant value known to the system is simply pre-filled, and otherwise manually entered data is imported year over year. For example I deduce the real costs of my commute instead of the default 10% deduction, and both the value and comments (which include the detailed calculations, because I'm nice to the other side) are there. I only have to make a few minor adjustments, and voila.
The Netherlands basically has this already. I think only of this year, though. If you're an 'individual' (as opposed to some kind of business entity), your tax form is sent to you electronically and you just have to hit the 'Send' button after checking it.
About 60% of tax payers submit a 1040A or 1040ez return. This is a dead simple return. The IRS already has all of the information needed to process these returns. The IRS could trivially set up a website that has two pages: 1. Verify this information is correct. 2. Where should we mail the check.
The _only_ reason they don't is that there is a HUGE industry that exists solely to fill out these trivial forms for intimidated people. HR block, et al will never allow the tax system to be simple.
The tax system is not convoluted and complex due to the influence of the tax preparation industry, they have very little influence on the matter.
Instead, it's the way it is due to many other enormous industries and interests (farms, welfare, support for families and home owners, investors, etc, etc, etc.) I can guarantee you that the reason there's a special section for "fishing boat proceeds" on your W2 is not because H&R Block thought it would be a hoot but because of complex politics around the fishing industry.
1. Why should there be one for all income categories? Some taxes are just plain fundamentally more complex than others. As it is, you can e-file for free through the federal government (I did so 2 years ago, it was no harder than filing out the form).
2. Are you seriously posing the question of why a ponderous government bureaucracy hasn't streamlined a process and made it user friendly? I'll just leave that one be.
Normally I dismiss statements like "the lobby for X is the reason why things suck," but in this case I think you're at least partly right. H&R Block has literally spent millions lobbying against tax reform bills.
I can't speak for why this hasn't happened yet. This idea, though, was a small thing that was very appealing about Obama back in 2008:
> Simplify Tax Filings for Middle Class Americans: Obama will dramatically simplify tax filings so that millions of Americans will be able to do their taxes in less than five minutes. Obama will ensure that the IRS
uses the information it already gets from banks and employers to give taxpayers the option of pre-filled tax
forms to verify, sign and return. Experts estimate that the Obama proposal will save Americans up to 200
million total hours of work and aggravation and up to $2 billion in tax preparer fees.
Not sure about your reasoning why, but I agree with potential fix. Why can't the IRS send me a form that says this is what we have, sign if you agree? For most people this would work. For others it would be a starting point for deductions additional income, etc...
What floored me this year is that after I submitted my taxes the state sent me a letter asking me for my W2 to verify the numbers. My confusion was, why doesn't the state already have my W2?!
"The IRS already has all of the information needed to process these returns"
Almost. They don't have filing status (married/single/etc.) and number of dependents. Unfortunately, those affect your tax rate, so the tax return can't be calculated without it.
If you're a W2 employee, they already have that information. It's on the W4 form that you fill out when you start a job, so that they can deduct the right amount from each paycheck.
Actually the data you put on the W4 doesn't have to have anything to do with your actual status. Moreover, your status may have changed since you last updated your W4.
Just in case you are being sarcastic, it is completely legitimate to put down a large number of exemptions if you know your tax liability will be very low for other reasons, and you want your employer to withhold less money.
In fact you should tune the process - if last year you had a large refund, then this year add more exemptions till your refund is as small as you can make it. (Technically you can go over if you want, and be required to pay, most most people don't like that.)
The easiest way to calculate it is do last years return with varying numbers of exemptions and compare the tax liability number (not the final number which includes payments). Use the real return as a baseline, then keep adding exemptions till the increase in the liability matches your refund, then use that number on the W-9. Perhaps that number minus one.
This isn't hard to handle: you send out the prefilled form with whatever you filed last year, and if you got married/got divorced/had a kid/changed your filing status you fill out the full form.
I don't see how that claim could be true. The IRS has been pushing for simpler taxes for decades, and if they don't have the clout to make it happen H&R Block doesn't either. Taxes are complicated by much larger forces.
I don't know that it's the _only_ reason. I'm guessing another big part of it is that government agency software projects routinely run way past due and over budget, and often end up going nowhere. e.g.,
There is already software out there to handle your federal income taxes for free. However, to use Free File Tax Software.
This program is available if your AGI is $57,000 or less:http://apps.irs.gov/app/freeFile/jsp/index.jsp?ck
There's no reason not to have the e-file stuff directly on the irs.gov website.
Instead, it's farmed out to 3rd party sites who try to trick people into buying add-on services. It's ridiculous, but I'm sure they lobby hard to keep it that way, so it's probably not changing anytime soon.
Again, one more instance of the unhealthy trend in giving for-profit, 3rd-party companies your sensitive personal info, that the US Govt should be handling and be responsible for directly in the first place, making identity-theft and such nefarious activities easier.
Supposedly if you are over that limit you are rich enough to pay for a commercial software. Apparently government does not want to take business completely from the likes of Intuit.
I'm pretty sure most other countries do this. In Sweden when you get your tax papers, you can SMS in a printed code to approve the pre-printed numbers, and your taxes are done.
CA already does this with the ready return. All the information is already filled in with an option to change some information if something is missing.
According to the Tax Policy Center over 70% of tax payers took the standard deduction in 2010. Surely solving for that case first and letting those people who will always pay accountants to minimize their liabilities continue to file on paper would increase general welfare. It's the 80/20 rule in action.
1. What deductions? I fill out a ton of them every year and they're never more than my standard deduction. Maybe things change as I get older, but in the meantime it seems like a safe default. "Do you want to try and get your taxes lower than $X by filling in a bunch of info? (Y/N)"
2. What am I going to deprecate, my Civic?
3. Despite being in a healthy tax bracket I don't know what this is.
4. See #3
5. Snoozefest
6. Diverse activity?
7. Yeah I think most of your objections apply to the minority of people who actually hire a CPA to do their taxes.
The bottom line is, for the vast majority of people (even people with interesting W2/1099 incomes like me) you could do your taxes on a napkin if you enjoyed a bit of paperwork/math pain. Again: the IRS already has basically all of this info. What gives?
(3) Cost basis matters whenever you sell an asset, whether it's a house or a stock or whatever. You can get sucked into partnership cost basis calculations simply by buying certain mutual funds that are structured that way.
(6) Diverse activity means income in more than one jurisdiction. People who travel a lot for work can end up filing with dozens of states. A real hoot.
Except, that in my case, and a large minority of others (at least measured in the millions) all we are doing is filing a 1040 with the info from our W2s and taking the standard deduction. I've also had to fill out a schedule D for stocks, but as of this year that info is also reported to the IRS, so there's nothing I know that they don't know.
But does the weatherman go to jail if the forecast is wrong?
There is a steady stream of people writing "Google's automatic system screwed me and I cannot get it fixed" blog posts. If Google's automated system screws people, just imagine how effective the government's system will be.
Weather patterns are just a matter of applying some relatively simple rules a huge number of times. Taxes, by contrast, require clever parsing of the meaning of words and the intent behind them. Figuring out exactly what counts as "education" for instance.
OK, but it seems like robots could at least make this a lot easier. Why can't the IRS send me forms with information pre-filled in based on the best of its knowledge? Doesn't CA do something like that with state taxes?
So, what you're essentially saying is that robots aren't doing out taxes because the rules are poorly defined and open to wide subjective interpretation? That sounds to me like the rules are broken, not the robots.
If you don't itemize or have a business, then the IRS has all your income available to it. In particular, brokerages must now report cost basis on all stock/MF sales.
I was on a StartupBus to SXSW this year- at the pitching stage, one of the guys pitched an idea based around simplifying people's taxes. He was a qualified CPA himself, and had years of experience working in the tax industry. No-one volunteered to work on his idea. The winning StartupBus team was a site that let you make your own custom breakfast cereal.
I suspect that if we want to ask "why isn't tedious process [x] automated by now?", we should be looking at ourselves for answers.
(after the first day on the bus he and another guy broke off from their team to work on the tax idea- so it wasn't a total lost cause, but wasn't the highlight of the competition that it could have been)
There exists a school of thought that says making taxes painful is a great way to remind you that taxes have visible consequences on your life just like spending does, which is a point of non-trivial interest ot the American polity. Someone subscribing to that school of thought might rationally oppose non-economic ways to make taxation less painful as a way to prevent a transition to invisible (or even fun!) higher taxes.
I'm stopping here to avoid committing politics on HN.
If you want to maximize the painfulness of paying taxes, why not just have everyone pay their income tax as a lump sum instead of the current system where employers have to withhold an estimate of an employee's tax burden and then the employee has to compute the difference between their actual tax burden and the estimate and get it fixed.
Of course, if you did that, people might try to pay taxes using their credit cards.
that's how it worked for the first thirty years or so, until Milton Friedman(!) invented withholding. the point was, surprise surprise, to provide a more reliable revenue stream for the government.
Imposing one form of pain (tax complexity) in the hope of reducing a different form of pain (higher taxation) seems to miss the point. That's like imposing a tax on education to prevent private schools from raising their fees (parents won't be able to afford higher fees plus taxes!!)
Except the popular response to modern day taxation is for people to say that they wish they could pay more taxes instead of getting hassled.
Complicated tax law is the banal result of decades of special interest lobbying to carve out giveaways for favored parties and the finance-industrial complex.
I'm in this school. I do my taxes on paper and mail them in. It's probably not rational. It definitely takes longer than using software (but honestly, not a lot longer). I like to be reminded how absurd the whole system is.
I worked at an e-commerce store that shipped a lot internationally. In the beginning, we had calculations for all of the tariffs and taxes required to ship and added that to the end (ups would allow us to pay for this up-front to make it easier for our customers).
Customers would bitch at us all the time about how our prices were too high. We changed it so they had to pay for all of this separately (and so they knew that we weren't the ones increasing prices) and the bitching stopped.
It's one of the reasons I don't want taxes hidden on goods sold in the US. Because people won't think about it and won't really know when the government starts raising taxes.
They will just assume it's the big, evil, companies overcharging.
It's happening right now with gas. Many states have additional taxes/gallon and people just assume it's the stations.
I think this is exacerbated by the various levels of tax in the US, because not everyone knows which taxes apply it makes it difficult to compare prices objectively.
In NZ GST is always 15% and always included but because everyone knows this it makes comparison easy.
Not really. In Ireland & the UK, VAT in the region of (22%ish or 17%ish), prices of goods in shops and online are quoted 'VAT inclusive' (likewise petrol), it's only 'trade', i.e. companies that sell products to other business (who then have to charge VAT to the general public) are sold 'ex VAT'.
Oh, that `trade' exemption also applies to Germany. I think that's a common consequence of VAT systems, that only the consumer is quoted inclusive prices.
It can be done. In the UK, most people don't even do a tax return. And let's say you're self employed.. if your tax affairs are reasonably straight forward, you fill out a handful of numbers and dates on a Web site, get an estimated tax bill within minutes, and you're done. You then get sent a proper statement later. In a system with flat taxes, it'd be even easier.
I think the author touches on the real problems in the last couple of paragraphs. The American government isn't particularly good at spearheading initiatives that benefit voters without allowing "lobbyists" or commercial interests to take over. It also doesn't help that you have the federal and state structure (as good as it may be for other things) since the decisions can't be taken by one central place given all the local tax laws.
I miss the simplicity. For better or worse lobbyists are part of the US political system that won't go away any time soon. The "right to petition" is granted under the First Amendment. The intent was probably different from the reality, especially in regard to access to government for individuals. Lobbyists seem to be the gatekeepers, and only corporations can pay the fees.
When it comes to individual action many people are protective of things that are not necessarily in their best interests. Anything that threatens the freedom of the individual trumps everything else even if the alternative is slightly better. This happens with healthcare reform, to corporate taxation, to individual taxation (where people want to keep the status quo just in case they "get rich").
I seem to recall that there's something about the way the way that the US income tax works, legally, that prevents that from happening. That is, your income tax has to be something you pay rather than something someone pays for you.
Most people have their employer automatically deduct a chunk each paycheck. The annual forms are to figure out exactly how much you owe and whether you need to make up the difference or get a refund check. Most people get refunds.
It's more complicated for the self-employed, or if you don't want to loan the government money for free.
Most employed people in the UK also have their employer deduct taxes from their paychecks. The difference, though, is that if that happens and if someone doesn't declare their tax affairs as being more complex, the tax authorities assume everything is order and no tax return is required.
I suspect other things have an impact on this system working though, such as the much lower ownership of shares and tax-attracting investments in the UK, as well as the generous tax-free allowance for capital gains (I'd need to make a realized gain of something like $20k in a year to pay any tax on shares, for example.)
I'm pretty sure Intuit lobbied pretty hard to kill any and all progress that would allow most people to have their taxes automatically completed for them, equivalent to the 1040AUTO mentioned in some of the other comments.
Normal humans can do their own taxes in a few minutes if they qualify for the 1040EZ. Intuit has a mobile app called SnapTax where you take a photo of your W2 and answer a few questions. http://www.denverpost.com/business/ci_17101221
While my knee-jerk response is to agree with you, there are some cases where we want the government to shape behavior. The best example I can think of for this is gas taxes---there's a cost to driving (road maintenance, traffic lights/signage) that you wouldn't really pay for unless it were through taxes.
You could point out that that's a sales tax and thus not particularly applicable to the discussion at hand, and I'd agree, but the idea of making people pay for negative externalities is a good one.
But tax expenditures are the only way for anti-government types in government to spend money! ;-)
The complexity doesn't come from the simple cases: it comes from the cases that are legitimately complex. Carried interest, investment gains, charitable contributions, foreign income, corporate debt and so forth aren't reducible to a simple equation. For the vast majority of Americans taxes are simple: for many of the rest, they will never be simple unless they are abolished all together.
Carried (really, any) interest: income.
Investment gains: income.
Charitable contributions: good for you.
Foreign income, less taxes paid upon repatriation: income.
House purchase: congratulations.
The tax code is complex because it gives the government power over us, because there is a huge industry built around it and because rich people can use it to their advantage.
Agreed except for foreign income: we have treaties with most countries to avoid double taxation: If I've paid taxes to Turkey for money earned in Turkey, why do I pay it again in the US?
Now, things get more complicated with foreign investments. If you've paid taxes on the investment in Ireland, you've likely paid less than you would in the US -- so that doesn't quite work. That's where things get complicated.
should all work like multi-state commuter taxes--i live in NJ, work in NY, and my NY tax is credited against my NJ liability (leaving no liability to NJ, as NY rates are higher (at least with the extra NYC tax thrown in)). tax treaties (as exist between many states) just make the revenue sharing easier from the governments' point of view.
Unfortunately, the political will to implement these ideas is almost entirely lacking.
Also, while most people claim to object to tax credits to special interests in principle, in reality they only object to tax credits that other people enjoy.
My father did mainframe dev contract work for the IRS and once told me it's a miracle you even get your tax returns every year. :) There's quite a mess behind the scenes due to a number of failed new projects at the cost of taxpayer money.
I wish we could automate all of this but taxes themselves are also still a sort of art with all the exceptions. Technically there are rules about when you qualify for things but from my experience accounting firms operate more like law firms in that they help you figure out how to meet the bare minimum to legally qualify for various returns.
They just put in a new system over the Xmas break and it is even worse from a customer service perspective than before (almost impossible to talk to a human).
Although the fonts on the letters they send you are nicer :)
"Better yet: since the agency is already receiving that data from all those financial institutions through a separate stream, how about organizing the data for me and simply letting me sign off on my automatically-generated return? I suspect that a lot of people would like that, given that the alternative is spending a spring day doing paperwork."
Especially for those who only have a single W2 or a similarly simple state of affairs, it is quite ridiculous the amount of pain you have to go through (and preparation fees you have to pay) CONSIDERING THE GOVERNMENT ALREADY HAS THE INFORMATION!
I definitely think tax preparation firms are lobbying to keep from simplifying the preparation process.
I remember one year around 2005 or so I was able to file my (federal) return by telephone directly with the IRS for FREE (I was a student and had only the one W2) and it was relatively painless but the next year the option seems to have disappeared. Anyone remember that?
I once complained on a message board that sales tax should be included in the sticker price, so that I know ahead of time what I'm going to pay.
I still feel that way, but someone pointed out that it would further hide from consumers the fact that the government takes money out of every transaction. Now I contend that every sticker should tell me both the price with taxes, and the price without. This would make it very clear how much I would have to pay without government intrusion, and how much extra they get from me.
I'm getting the same vibe here with income taxes. Taxes used to be a much more contentious issue before it was taken out of every paycheck prior to the worker seeing the money. Now the single pain point in paying taxes is an hour's worth of paperwork once a year. Eliminate that friction, and the government becomes an invisible siphon, sucking money right out of the economy, with hardly anyone noticing.
By all means, make paying taxes easier, but don't obscure the fact that someone is taking your money, all the time, without giving you a choice in the matter.
> ...but don't obscure the fact that someone is taking your money, all the time, without giving you a choice in the matter.
I've always been curious about this point of view. While it is true that you are paying money in taxes throughout your life, it is also true that at the same time you are receiving the benefits, to some degree, of that taxation in the form of public infrastructure and spending. How you experience life from your moment of birth depends on how those in the past have spent and dealt with issues like taxation and public spending and how you take advantage of those things, knowingly or not.
If you could choose to not pay some or all of the taxes you pay now, would you? Would you ever spend that extra income to benefit people who you will never meet or interact with? Would you ever spend that extra income to benefit people you actively disagree with or find repulsive?
I didn't say we shouldn't pay taxes, or that there aren't benefits of having the government those taxes pay for.
But nobody gets a say in the matter. And everybody should be aware of this most basic function of the government.
I'm basically advocating taxpayer awareness, and government oversight. I'm not a member of the tea party and I don't want to get rid of all taxes. I feel that some friction is welcome when paying taxes, because otherwise people will be less aware they exist, and the government will have an easier time raising them.
That's the price for living in a civilization that provides enough safety for having a source of reliable income, and a market to spend it in.
Not that the US government is really doing a good job allocating that price or spending the proceeds, mind you, but please don't go all "MAH TAX DOLLAHS".
Autotax.me is going to help you deal with your independent contractors. It contracts, files and audit proofs your 1099 taxes. It's almost like an HR/Tax service in one.
You can check it out now but its still really rough/ugly. The functions work but there's no real UI so that's what I'm going to be finishing up.
Any questions, you can check out cameronkeng.com
if you're interested in any of these products, shoot me an email at cameronkeng@gmail.com or tweet me @cameronkeng =D
I work on optimization software and I'm pretty sure you could do some serious damage to the government's tax collection efforts if you hooked up a genetic algorithm to some very good accounting software to minimize taxes.
The problem with GA's is that they frequently exploit loopholes in their setups, so you get solutions that technically satisfy your evaluation criteria but it's not what you really want. This process is basically what corporate accountants do manually to get ridiculously low tax rates for big companies. Congress writes the tax code but it will always have loopholes, and GA's will definitely find them.
Here's a recent blog post of mine that goes into some of the problems with GA's, which when you're looking for loopholes is actually a huge advantage:
Auto-generating a tax return is one thing. Taking advantage of all your potential tax benefits and considering your edge cases is another thing. I've seen tax returns for many of inDinero's customers, and it's clear to me that their previous accountants took shortcuts in compiling the return.
Yes, it'll get filed. But there were probably more tax advantageous things they could have / should have done. Consider these examples:
1 - tax credits. How is the government supposed to automatically know that you're paying for child care? How are they to know that you just installed solar panels on your roof or that you just purchased an electric vehicle? Sure, they can make this "automatic" -- but then you'd still be going out of your way to report your purchase, and this is in no way simpler than the current solution today.
2 - does it make sense to be taxed as a partnership or sole-proprietor? For a lot of our customers, they're basically flushing $20k down the toilet because they didn't want to go through the tiny nuisance of filing as an S-Corporation. Pretty sure you don't want the IRS to dictate your tax treatment.
3 - should you depreciate your Aeron chairs over multiple years, or do accelerated depreciation which will allow you to deduct the entire amount in a single year? The IRS gives us the flexibility to choose, and it's questions like these that may require the help of a tax professional.
4 - deducting vehicle expenses. How is the IRS supposed to figure out how many miles on your car were used for business VS personal purposes?
5 - what part of your apartment was used exclusively for hacking? No way for the IRS to know that the number is 250/1500 square feet.
In short, putting together a tax return isn't that hard. The difficult part is hunting down all of this other information that we have no way of just knowing.
Instead of asking why robots couldn't be doing our taxes by now, we might rephrase the question to read "how can we do year-round accounting in such a way that taxes are 10X easier to take care of?"
The real problem is not the lack of systems but the ridiculous complexity of tax law. Since the complexity is unlikely to go away any system would have to handle it - and this is not an easy task.
Given that the OP works for an organization which is "focused on digitization of government data" it is quite peculiar that he doesn't understand the problem domain any better. It's quite a joke to think that it's a matter of throwing in some web forms here and there.
In complexity I would say it's up there with his favorite Apollo quote. Maybe not on par - but close. Just thinking about the size of the rule engine which is required makes my head hurt.
Not just complexity, but vagueness. Good luck writing a program that calculates what's "reasonable". Was the construction work a "repair" or an "upgrade"?
How about determining what would be a reasonable amount for someone to pay if they were in the shoes of the businessperson but dealing at arm's length?
I owed them money a few years back and had to pay them using some online payment system.
It was necessary to do this because they failed to implement the payment plan that they agreed to. So interest was piling up and they weren't withdrawing what I owed them.
So I sign up on this system. They had to MAIL me the password. By USPS mail!
So it finally comes. I log in and pay off the entire amount.
Later, I find out that the system applied the payment to the wrong year. Apparently this was my fault somehow, as the system defaults to the current year, not the year that you owe on.
So I have to call to get that straightened out. The person applies the payment to the correct year. yea!
Now can I find out my balance? Is it paid off? "Let me transfer you to the department that can do that."
Apparently, that's a different skill set altogether. No way to check it online. Why would you ever need to do that?
Finally get to a person who can tell me. And it turns out they started the original withdrawal of funds from my bank. So now they owed ME money.
And that came by paper check, delivered by USPS of course.
Over in my corner, we have a State provided income tax simulator and filer. Not too pretty, but correct and useful; it's done in Java and runs under Windows, MacOS and Linux.
It's been so successful that most tax returns are nowadays filed with it, and quite a few public offices where people used to queue up to file their (paper) returns have been closed. There was never much of a setup/tradition of filing by mail like in the U.S.
Over the last couple of years, they've improved data cross-referencing to the point where I can get most of my form pre-filled from the government.
The thing is, complicate tax code is merely a welfare program for tax lawyers and accountants. If we made taxes easy, or automated parts of the process that are the same for everyone, we would be cutting off the supply of money to the leeches. Since they don't want that, and they are better at being parasites than the groups normally attacked for parasitism (teachers, postal workers etc), they successfully lobby against making taxes easier for most people.
Belgium has had this for a few years now. In my case everything is prefilled, even the deduction for charitable donations. Basically this is a US-specific problem.
Was going to say the same is the case here in Denmark. Your employer reports your earnings, your banks report your balances, etc. And if you need to enter some extra information, like mortgage interests or driving reimbursement it's all done through a website and a new report is generated instantly. I suspect all this automatic reporting might clash with the average american's perception of personal privacy.
If I was ever elected president, I would direct congress to reduce the size of the tax code by 10% each year. If they fail to do so then 10% are automatically eliminated - eg all those whose last digit of the article number is 3.
The real reason for why things are so screwed up is corrupt politicians who use their power as a fund raising mechanism. For example there were several taxes added temporarily to see if they worked well. They did, but congress doesn't make them permanent. Instead they wait to be paid each time to renew them temporarily again. (This started in the Reagan administration.)
I'm not sure what the comparison between UK (where I am) and US taxes is, but I found the process here very easy. I load up an online form, I fill in the data and click submit, they tell me how much I owe and I pay. Very easy, the hardest part is saying goodbye to all that money.
The comparison, sadly, is totally different. The UK system is relatively simple (I never even had to do a tax return when living there), the US system is a byzantine labyrinth.
This seems like a startup opportunity. Take photos of your standardized forms, upload them to a server, server calculates your taxes, only asking questions when the pertinent data is missing from the forms.
IMHO this service should be offered by the government(s) themselves (and if it was, it would mean even less data needed to be entered; after all, they have copies of all your forms already), but fat chance on that.
This is exactly what HRBlock and Intuit currently do. They have hooks into all the payroll processors and investment companies and will download your W2s and any 1099s from the relevant company. Then you just answer a bunch of questions.
The problem is that a private company shouldn't have to offer this service. The government should do it for you for free because it helps them get their money faster and easier. However, as the article and others noted, those private companies realize this would be very bad for their business and have lobbied to stop it.
Intuit TurboTax (http://www.turbotax.com) has been doing this for years, but charges ~$50 for federal and ~$30 for state (and a little more if you have a business.)
Assuming our tax law remains insane, I actually prefer having private tax preparers. The IRS's incentive is clearly to make me pay much tax as possible, whereas for private tax preparers it's to make me pay as little tax as possible.
If our tax law were simple there wouldn't be much difference between the two, but in its current state there is. Thus I think the tension between the two groups is healthy.
My concern about this is that if we fail to simplify taxation laws before any singularity then we'll reach the point where only robots are capable of processing taxes.
I have to echo the comments here about the UK system. It's unbelievable to someone that's only experienced the Inland Revenue, but they're about the biggest non-event ever when compared to their equivalents elsewhere.
Some countries do already. In Norway, you get a your tax papers (well, paper; it's only one sheet) pre-filled. You only have to take action if they got it wrong.
At least this works for normal employees. It gets slightly worse when you have your own company.
The flawed assumption being that tithes are solely financial. The government would be content to burn your "money" in a pit; your submission and mental buy-in are what it's really after.
There are many good reasons to move to the US but having just done so I look around at friends filing and complaining about their taxes and dread having to do it myself.
SEVERAL countries does taxes electronically --and i don't mean the lame way irs does here, where doing it eletronically means auto-filling two boxes in the PDF to take somewhere else later. Brazil, 3rd world mind you, has a java application (for years) where you fill in some boxes and it not only calculates everything it also allows you to compare different ways to use your exemptions. It's not very good if you have a corporation, but that's because they choose so. not because oh my god it's impossible to code something so complex.
Everyone talking about how difficult it is to implement all the rules have no idea how software works apparently. if it's already worded as rules, you can code something to work with them just like a human reading those rules. People code more complex systems than taxes every hour.
Now, if you take the irs.gov experience i just had this month... every link is link-bait to PAID services. And that's the ONLY reason we don't have robots doing our taxes.
Someone that already have robots doing our taxes make enough money to pass legislations that allows them to put links in the IRS own site that have more visibility than link to the forms.
This year, the state sent me a letter claiming I had paid zero taxes in 2010. They said I had to pay 100% of my tax liability right away or face liens, etc.. Of course, this was patently untrue--my employer had actually withheld more than my total tax liability for 2010. (I know this because I still have my 2010 W-2). So I was entitled to a refund for 2010, but the state was saying I owed them the full amount, plus penalties.
After contacting the state about this, they said the problem was that my W-2 form had likely become "detached" from my 2010 return.
So apparently, the state relies on a paper copy of your W-2 attached to your return to determine whether your employer has paid them the withheld taxes. If they can't find the W-2 you send them, they assume your employer didn't pay them anything on your behalf. Given that employers are already making electronic payments each quarter, why can't the government just derive its W-2 data from that? (I know, I know--they're probably not collecting that data right now. But the point is they could do it as part of the quarterly payment process.)
EDIT: Another funny bit to this story. I asked the state to confirm that my employer had indeed paid the amount reflected on my W-2. I figured that if the error was on my employer's end, I could take it up with them. But the state refused to say one way or another, citing confidentiality.