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.
An offer and suggestion. The offer: I'm happy to blog and otherwise share your site with folks in my little part of the world (Northern Neck of Virginia).
Suggestion: Consider a redesign where the text is not white on a dark background. I just found this design guidance from CDC https://stacks.cdc.gov/view/cdc/11938; not sure if there is updated research. If there is, I'd love to read it.
To clarify, do you have a blog that you've managed to share with your local community? Or are these two separate statements?
I ask because I've been lately interested in the idea of a "community" site - a 'hub' for locals - so if that's what you do, I'd love to hear more!
> There was a recent effort by the U.S. government *to* create a no cost,
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.
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An error occurred during a connection to freetofile.com.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.
[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]
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)
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)
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...
Even without RSUs, I usually have hundreds of transactions across multiple brokers.
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).
I suspect many others on HN have something similar setup.
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%
What tax complexities exist for low income people that would cause $200 fees?
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.
This is how it's done in most other countries.
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.
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.
If you don't fall in that bucket or run a business, you tell them those things and send back the corrections form.
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.
Gemini says 90% of the American workforce are employees.
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.
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.
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)
https://priceonomics.com/the-stanford-professor-who-fought-t...
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.
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.
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...)
Does the IRS get a form when a child is born or dies?
You could say, yes, the IRS should keep tabs on all this life activity, but that seems pretty gross.
How is it gross for the IRS to know that when you have to tell them anyway to get the associated tax adjustment?
You'd just report it the year that it starts to apply, and then your future filings would have that accounted for.
I don’t know the % of Americans each year who have a tax-related event that isn’t already reported to the IRS, but given something like the complex eligibility rules for the widely-used EITC, or the number of folks paying back college loans, I’m comfortable saying it’s much higher than 10%.
A ton of tax law is premised on who lived where for how long to determine primary residence. Many citizens—especially poorer ones—move a lot. The IRS should build reporting mechanisms to keep tabs on where everyone lives month-to-month?
You can either simplify the tax code dramatically or increase massively the amount of preemptive reporting to the IRS. Otherwise this idea of the IRS divining the typical American’s tax obligations is unworkable.
There's no reason that for most people in most circumstances couldn't have their taxes done automatically most years. Exceptions will always be the rule and our current processes handle them. That does not in any way exclude the usual cases.
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.
It really has very little to do with TurboTax lobbying, but that’s a framing that sells.
For taxes, how is the government supposed to know about the work you did in exchange for cash? Or make a difference between a vacation and a tax destructible business trip. They will sometimes look into it if they suspect fraud, but they have no way of knowing exactly what you owe beforehand, and that's a good thing, surveillance is as bad as it is right now, not mentioning the costs.
The best they can do, and that's how it is done in most countries, is to tell you "according to what we know, you owe us XXX", but it only works in the simple cases, like for those whose only income is their salary. If they missed something and their estimation is wrong, you must declare it or you can be in trouble. It is just a convenience, you still need to do your taxes correctly and you are responsible for it.
One may argue the rules could be simpler, but they are complex because the world is complex, and even small changes can make or break industries.
Mostly because of:
> TurboTax’s 20-year fight to stop Americans from filing taxes for free
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).
Happened to my parents recently
Your parents must have defaulted on the plan, not filed taxes or otherwise broken a rule. Because once a plan is set up, the IRS is forbidden from seizing assets unless something rare like the previous happens.
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,
- 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?
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.
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.
It seems their real use is to provide a paper trail for audit should they choose to.
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.
Exactly. That’s why they want you to do it and not them.
It's marginally more work for them to tell you the results of their math. And compared to how many people file taxes it's a net benefit for society. Collectively paying a small group of people to do something for the benefit of many is like the whole point of government.
I don’t know that for sure that.
The could send 100% of people a bill that you either pay or file tax forms to replace.
but people do care and so they are willing to pay $60 for tax help
But I think when you understand tax policy you think and act differently in regards to financial decision. So outsourcing it reduces insight into think that perhaps most impacts middle class finances besides job.
Just because you personally disagree with something doesn't mean that it's a ridiculous lie.
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.
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.
So much for the "drown the government in the bathtub" talk - turns out it was always just about the rich not paying more.
That said he’s not and never was a libertarian.
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.
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.
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.
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.
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.
The people who maintain the infrastructure which enables you to have that 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.
It requires people to not consume; any money that is put towards investment is not put towards consumption.
Sure. But they aren't consumption. The whole point of investing is to forgo consumption now in order to put those resources to use for something else, something that will improve the situation in the future. That's where the returns on the investment come from.
And it might be good to try and limit accumulation even if the accumulation doesn't have real economic effects; it can still create resentment or bestow power.
Um, what? It requires huge government agencies, a ton of impenetrable regulations, and a lot of bother for people who have to file.
Whereas we already have a much simpler system for assessing sales tax whenever people make purchases.
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.
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.
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.
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.
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.
This is precisely how it works in both EU countries in which I've lived.
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?
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.
It seems to me that there are many conflicting interests. We want simple taxes but we also want special protections and carve-outs.
> 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.
That's why all the covid stimulus checks were done via the IRS and the PPP loans were done through commercial banks.
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.
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.
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.
If you look at it as a practical or technical challenge, you're addressing the wrong question.
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.
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.
This does not apply to government / public work that has to be done anyways. Nor to any public service in general for that matter.
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.
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!
---
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.
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-...
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.
https://www.irs.gov/businesses/small-businesses-self-employe...
(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.
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.
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.
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).
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.
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 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.
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.
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.
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 :)
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.
Whereas I guess American Exceptionism (tm) means you all have to pay a rent seeking company to file taxes…?
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 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 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.
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.
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.
And if all you have is a W-2 you don't experience most of the complexity of filing as it stands now anyway.
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.
(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.)
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.
Whereas a for-profit company's explicitly stated goal is to make as much money off you as they can.
Culture
That said, the lobbying is really bad of course, probably also prevents cheaper or FOSS alternatives.
> 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."
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.
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
#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.
I'll posit a hypothesis: Scale and morality interpretation differences.
I've yet to have a > $1000 restaurant bill (not even close), and the experience I got and the reciprocity instincts in me compel me to correct it if say they were to forget to charge me for my guac or give me more change than i was owed.
Whereas in the Gov't there is scale that tempts people to choose immoral paths, and also there's a morality of efff the government in a lot of people's minds. It's an abstracted entity of which we mostly do not enjoy the experience and cannot treat humanely (it's not a person).
Suppose your friendly neighborhood restaurant stopped giving you the check at the end of the meal, and instead had a stern sign on the table saying "Pay what you owe. Underpay and we call the cops."
Would you still feel that warm reciprocity?
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.
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.
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.
"extremely complicated to use" well, that is something that you hear often from Tax advisors or tools for less than €30. Same FUD tactics.
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.
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.
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.
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.
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.
Vs. public services and public servants? Not so much.
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.
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.
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.
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.
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.
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"
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.
I wonder if the explanation actually had to do with these people who used to do the job 15 years ago influencing the process to ensure they remain relevant. Kind of like in the US actually.
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'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.
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.
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.
It works.
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 enter my credit card number, and pay. That's all.
Same for other stuff like housing tax, too.
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.
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.
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.
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)
(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)
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...
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...
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.
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
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.
Plus interest and fees (they can't call them fines because then you'd have rights), so call it triple to be safe.
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.
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.
( https://www.youtube.com/watch?v=e97kq2XflKE )
It's still largely maximising what can be pushed through unintended loopholes.
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.
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!
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.
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.
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.
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.
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.
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.
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.
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.
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.
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 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%.
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 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.
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.
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.
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?
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."
> to be in the top 10% of US earners, you need to earn nearly $149,000 annually.
> According to the same research, those in the top 5% earned at least $352,000.
https://www.unbiased.com/discover/banking/how-much-income-pu...
I have no idea how to calculate the flat tax now. The words "nearly" and "at least" make it even more confusing.
Consider the stuff here: https://taxfoundation.org/data/all/federal/latest-federal-in...
________
The first chart shows an ascending staircase of tax-rates as each group has a higher average income (not shown) than the prior group, indicating a progressive tax scheme.
With a flat tax, every bar would be the same moderate height. We don't automatically have enough information to say exactly where the horizontal line would be, but clearly it has to be somewhere between today's "Bottom 50%" and "Top 1%", meaning those groups would see a tax-hike and a tax-cut respectively.
________
Another approach is the next chart, "High-Income Taxpayers Paid the Highest Average Income Tax Rates".
Much like my "many peasants" and "few nobles" groups, this chart has 6 groups. It shows the smallest group, the "top 1% of people" took in 22% of the taxable income, and paid 40% of the taxes, and so on down the line for the other chunks.
Under a flat tax, any group with X% of the income would also pay X% of the taxes. In other words, the right-hand stack would shift to look like the left-hand stack.
Knowing this, you can tell which groups' "taxes paid" boxes would grow (tax hike, boo) and which which groups' would shrink (tax cut, yay).
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.
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.
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.
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.
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.
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.
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.
Why doesn't the US provide a free 10-minute online wizard for them, like plenty of other countries are already doing?
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.
> 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!
Everything else is fully automatic.
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.
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...
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
22 Subtract line 21 from line 18. If zero or less, enter -0-
21 Add lines 19 and 20
18 Add lines 16 and 17
17 Amount from Schedule 2, line 3
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.
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?)
That said, i think the system as a while is far too complicated. The application is simplified, but the rules are far too complex.
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.
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.
The propaganda must be pretty special to have you so convinced though.
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)
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-...
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.
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.
Laughing I suppose until they get their property tax bill, or pay incessant road tolls.
(Sorry, I clearly have an axe to grind.)
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.
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.)
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.
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.
So much fun :)
you used to be able to do this yourself on the gov website for free
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.
Edit: This is timely being on the homepage: https://news.ycombinator.com/item?id=45601230
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.
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.
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.
Take corporate/dark/unlimited money out of politics and watch this problem (and many other) disappear.
Is it a matter of liability? Like I could definitely see a big issue with mistakes — even if it was just operator error.
Even the revision of yearly variables is a considerable task.
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.
I have heard and seen enough horror stories about employee pushback on different scales against automation and simplification.
https://opentaxsolver.sourceforge.net/
The UI leaves a lot to be desired, but it does work and I used it one year.
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.
"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)."
Some previous discussion:
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)
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-...
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.
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?
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.
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.
It's all going to your new Gestapo and concentration camps anyways.