Happy Tax Day… said no one ever.
In fact, taxes are so bad that people forgo billions of dollars collectively to just get it over with.
I just got an email my tax preparer that our extension is safely filed. Phew! Wait, what! Extension?!?!
It’s true. For around the 10th year in a row, we are filing an extension. Actually, “we” is wrong. My wife did ALL of the difficult personal tax stuff. I’ve been slow to put together the paperwork for the S-Corp. Unfortunately, the personal tax filing requires the S-Corp to be filed first as those numbers will feed into the personal filing.
This means that I’m writing this article about filing taxes (we’ll get to that in a minute) instead of filing taxes. That’s exactly how much I dislike filing taxes. And remember, I have a tax preparer.
I have written about some of the tax scams out there. Most of these are run by individuals trying to steal your tax refund.
The scam today that I want to talk about it that most of us shouldn’t be filing taxes at all. By the way, since many lawyers seem to sue me for using the word scam, please see the disclaimer below indicated by the “*”.
While that’s my opinion, it’s based on my understand of reading ProPublica’s Filing Taxes Could Be Free and Simple. But H&R Block and Intuit Are Still Lobbying Against It.
I’ll let ProPublica explain:
“Here’s how preparing your taxes could work: You sit down, review a prefilled filing from the government. If it’s accurate, you sign it. If it’s not, you fix it or ignore it altogether and prepare your return yourself. It’s your choice. You might not have to pay for an accountant, or fiddle for hours with complex software. It could all be over in minutes.
It’s already like that in parts of Europe. And it would not be particularly difficult to give U.S. taxpayers the same option. After all, the government already gets earnings information from employers.”
One of my favorite shows, Adam Ruins Everything, has an extremely funny 3-minute video that expands upon it in more detail:
You should really watch the video if it is at all possible.
The ProPublica idea of how taxes could work makes a lot of sense, doesn’t it? For me personally, there would likely be a lot of corrections to make. Or I might have to prepare my taxes myself. That’s on me for having an S-Corp, rental properties, and some other stuff that is less than standard.
The promise with the latest tax reform was that Americans could do their taxes on a postcard. So it stands to reason that a fast majority of Americans could instead review the postcard that the government sends them, signs off on it, and drops it off in the mail. It could take a majority of Americans 30 seconds assuming that they have to go to the post office anyway.
We could even get really crazy and make it possible to confirm and fix online. I understand there some security concerns with that, but the Social Security Administration already has a ton of financial available online.
It seems that the major problem for reaching this tax utopia is that the tax preparation companies themselves seem to lobby congress to shoot down bills that would allow it. It doesn’t sound logistically complicated and other countries are doing it successfully.
We could probably save a billion hours of productivity and billions of dollars of consumer dollars if we just did the sane, bipartisan process that we use for just about every other billing procedure (as explained with the pizza delivery example in the video above).
The other day my wife was reading something that involved the term “racketeering.” I started to explain it the best I could, but then I realized I should rely on a more formal definition. Investopedia defines racketeering as:
“Racketeering, often associated with organized crime, is the act of offering of a dishonest service (a “racket”) to solve a problem that wouldn’t otherwise exist without the enterprise offering the service.”
A lot of that definition stuck in my head when thinking about the situation about tax preparation. I want to be very clear that tax preparation is NOT a dishonest service or alleging they are racketeering. In fact, the more I read the definition the less it seems to fit. Originally, I thought, “Hmmm, in the context of the ProPublica article, for many people tax preparation seems to be aimed at solving a problem that might not exist if not for the tax preparers’ lobbying to keep the problem in existence.” Parts of that opinion still feels right to me.
I’m not saying that this new system designed by ProPublica would be easy and perfect. However, can anyone argue against this as a great way to help tax payers save billions of hours and dollars?
How do you feel after reading all this? Let me know in the comments.
Update April, 2019: Now it looks like Congress is trying to ban the government from making free tax filing due to lobbying by the tax prep industry.
* I use “scam” as my opinion for anything that just doesn’t feel “right.” I wrote a little more about it here. It doesn’t mean that anything illegal is being done here. In fact, I often use it as in this exchange one of my favorite movies, Say Anything. It feels weird to add this paragraph on at the end of my articles to make it clear for lawyers, but that’s the world we live in. It should also be noted that I draft and publish my articles very quickly, as intended by the blogging platform, and thus this is most informal of writing styles with zero proofreading.
That’s a great idea and I think it would also save the government money as a lot of people simply do not file at all due to being intimidated by the process. I’m like you in that I’d still have to file because I’m an independent contractor and they don’t have access to some of my deductions unless I tell them about them but you and I are not the average person. Only one problem, the idea is too simple, our government would never do anything that logical!
DISCLAIMER: I am an Enrolled Agent, which means i have a license issued by the IRS to represent people and entities before the IRS. i spent 40 to 100 hours a week working on taxes and accounting.
that’s a nice thought. that is the way a 1040EZ works. you copy the numbers from your W2, compare it to the tax table, correct the math and sign it. or you have free/cheapo software do it.
BUT what about when your parents can claim you?
what about when you have kids but you’re not married to your baby daddy/mommy?
what about when you’re divorced?
what about when you have 2 jobs?
what about when you have an investment account and they issue you 3 updates on your 1099DIV?
what about what about what about …
and these are the SIMPLE situations i see every day.
fuhgedabout the businesses that don’t mail out the W2s/1099s until way late, all the people driving for Uber/Lyft who are discovering the curse of the 1099Misc=Sch C income [and a more expensive software package because the SE tax is complex]
and the new gig economy because young people can’t find a job that actually pays a living wage? so they have a W2 job and 2-3 side jobs, all 1099s so they have multiple Sch C?
as a professional, this sort of thing pisses me off. it shouldn’t be this HARD to do simple taxes. i get a headache doing this sort of tax prep because it has so many moving parts for so little income. i call these my rachmunis clients [yiddish for charity] . i get a hug and cookies as payment. except when i send the client home with a bag of homemade cookies or a cake [i like to bake]
anyway, i much prefer to save my energy for REAL tax issues. rental real estate, S-corps, C-corps, LLC who are confused, negotiations and OIC.
I think the ProPublica cites that some 70% of people can use FreeFile, but only actually 2% do because they don’t know about it. I’m not sure if that’s the same as the 1040EZ as this isn’t really my area.
I realize that a lot of this stuff does get complex, but I think there’s clearly a way to simplify taxes and automate it for so many people. I prefer that our tax people focus on those more difficult issues that you mention, too.
I had no idea that some tax preparers have been lobbying to keep filing taxes complicated for all Americans. What’s next? Doctors lobbying to not have vaccinations, annual exams, disease screenings, and the such so that they will have more patients? :(
I agree with your proposal. I don’t understand why people who don’t own a business or have complex personal deductions hire an accountant. When I didn’t own a business, I did my and my husband’s taxes. Your plan would make this unnecessary thing clearly unnecessary in the minds of Americans whom have basic tax needs.