The US has the most idiotic tax system. Your employer, your mutual funds, your 401k, your bank -- everyone reports what you make to the government. The government already knows what you owe (excluding those that itemize). They should just print out a summary and hand over a bill / refund.
In France, before this year, if you were an employee, you rarely filled a tax form, you just validated a prefilled one, usually with one click on the internet.
Now it's just taken every month from your salary, and you get a chance to correct it once a year.
Many countries do this, because in those countries, the government actually represents the interests of people. If there was ever a clear case of the US government putting the needs of businesses before the needs of the people, it's this: keep taxes as complex as possible in order to create business opportunities to sell products to make it easier again. It's a complete bullshit business that shouldn't be necessary at all. It exists only by the grace of an incomprehensible tax code.
Wouldn't generalise that much in saying my government (UK) is truly representative more than the US, but in the US in general, it seems that whatever business exists there has to be something for the middleman.
Also whatever government function exists must be open to a middleman to take their profit out of it. The US is optimizing for businesses and investors, not citizens.
Recently I was filing my taxes in Chile for the first time and it took about 10 minutes because the tax service already knows most of my activities, including stock purchases via a local broker and dividends from them. I only needed to review the form for correctness and press "send".
This is not done because the IRS doesn't have the power to enforce its tax system, and if it reported the information it had to the people, the people could know they can slip away with not paying anything that wasnt properly reported.
First, a transparent system of the IRS would lower revenue.
Second, the deductibles system is very complex for the IRS to pre-calculate it, so they are unable to do it.
You didn't cover the most important—and political—reason: it would delay refunds.
2019 deadlines for 1099-INT/DIV (i.e., the forms you get from your bank or brokerage) are April 1st. The IRS filing window opened January 29, with 90% of tax returns processed within 21 days. Since the IRS can't reliably pre-populate a tax return without all the required information, it would delay filing (and refunds) by 8 weeks.
As the tax refund check is the largest check many Americans receive every year, delaying that payout gets taxpayer advocacy groups up in arms and is tantamount to political suicide.
Incidentally, this same gap is where a bulk of tax return fraud happens—equalling billions of dollars. In short, if you file return before the IRS has all the information to validate that return is indeed correct, they'll usually shrug and accept it. By the time they get all the information they need, you've cashed out your refund debit card and are long gone.
I haven't seen any analysis that such a system would lower revenues (indeed, it would stop billions of dollars of fraud and tax evasion), or that the deductible system is too complex.
> In short, if you file return before the IRS has all the information to validate that return is indeed correct, they'll usually shrug and accept it. By the time they get all the information they need, you've cashed out your refund debit card and are long gone.
This doesn't really pass the smell test for me. The IRS has, what, 7 years(?) to audit your tax return. They can and will do so, and will send you a bill, with penalties and interest included. (Source: this has happened to me, around a mistake I made with self-employment tax the first year I had non-W2 income.)
Not sure how you'd be "long gone", either, unless you're not a US citizen and have since moved out of the US.
That's correct, albeit more nuanced than I was getting.
My point is that they'll "shrug", accept your return, and issue you a refund. Yes, they may come back later and say, "Actually..."
When I say, "you're long gone", I'm referring specifically to taxpayer identification fraud, where you'd file a (fraudulent) return on behalf of someone else (often a dead person or someone from Puerto Rico[1]), receive their refund in the form of a debit card, and "disappear".
In any case, it's way easier to avoid paying someone in the first place than try and claw it back later.
Other note that I like to make just because it's interesting: actual audits by the IRS are very rare. They send a good number of collection letter every year, and the collection rate on those letter is very, very good. But those collection letters are categorically not audits, and more "friendly reminders". (Such that any letter on IRS letterhead could be considered friendly!)
The difference is that you know whether you have all your required information. The IRS doesn’t know until it has everything.
Example: your only bank sends your 1099-DIV on February 15, so you file your return. You know that no other bank is going to send you a 1099-DIV because you don’t have any other bank accounts.
The IRS doesn’t know this. The IRS only knows that you didn’t get any other 1099-DIVs after they’ve received all 1099-DIVs and no more are yours.
The IRS could develop a system where they list what information they've received already, and you can then validate that this represents the complete set of expected information and request that they go ahead and process taxes now without waiting.
If they then receive more information later that would affect your taxes, they can bill you, or otherwise just go through the same process they would if you filed your taxes incorrectly under the current system.
Ideally, you'd want the IRS to be able to reliably populate a tax return, where all you do it sign it (or make corrections). A world where the IRS is pre-populating a return that may not be correct starts getting tough, even with such a taxpayer-warrant system.
Ideally, yes. If you need to preserve the ability to get refunds earlier than April 15 then one of two things needs to happen:
1. Move up the deadline for companies to submit tax information to the IRS, or
2. Allow taxpayers to declare that the IRS will not receive any more tax information than what they already have, with penalties for lying (presumably, the same penalties as what happens today if you submit your taxes early and you yourself haven't received all the relevant information yet).
Or we could just pay the one-time hit of "you can't get your refund early" and have the IRS process taxes once the existing deadline has passed for companies submitting tax information to the IRS. I say one-time hit because after the first time, any refunds for following years would occur 1 year after the previous year's refund, just like it does today, it would just be at a different point in the year (assuming you even submitted taxes early to begin with; if you didn't, then no change).
Especially with the tax reform, most folks will be taking the standard deduction. Making the common case easy is still worth pursuing, even if some people will still itemize.
No they don't. There's a gazillion things you could do or claim to lower your tax bill.
Moreover, if you set up all yoyr withholdings correctly then you do not need to file anything. You only need to file if you owe (ie you set up withholding wrong) or want yoyr money back (ie your withholding was wrong)
That is not true. You're generally required to file a tax return if your income is over 12K, depending on your filing status and various other rules, regardless of if you owe money or are owed a refund.
That's the problem. There shouldn't be a gazillion things, and the fact that there are is a major reason why rich, savvy, and unscrupulous people are able to game the system while average people pay full freight.
