5 ms·

> This would just paper over the fact that the US tax code is an abomination of deductions and credits. I understand the point you're making and it's a valid o

by CPLX 11y ago

> This would just paper over the fact that the US tax code is an abomination of deductions and credits. I understand the point you're making and it's a valid one, but that sentence really isn't actually true for most people. If you get your income from one job during the year there's an excellent chance you have almost no variables to work with. Maybe owning one piece of real estate or a dependent or two, but the standard deduction tends to wash out almost everything else for most people. What you're saying is somewhat true for most people who itemize deductions, but most people don't and have no reason to itemize deductions.

vilhelm_s 11y ago
I wonder if there are any statistics on which deductions are used by what percentage of people? I don't think any of them apply to me, as far as I can tell from the million questions the tax software asks.
- entee 11y ago
  I'd love to find some of those too, but brief searching didn't yield anything. In general though, it seems some of the most popular itemized deductions are: 1.) Deduct state income tax 2.) Mortgage interest 3.) Child-oriented tax credits Most deductions seem to favor homeowners and families.
bpodgursky 11y ago
~ 1/3 of people itemize. And this doesn't mean it's the richest 1/3 -- it's the 1/3 who have homes, children, and other real responsibilities which get credits. Middle class. The people who don't itemize have almost no burden right now; you can fill out a 1040EZ or use TurboTax free edition. The middle class is who is going to get screwed out of deductions.
- toomuchtodo 11y ago
  > or use TurboTax free edition. Who do you think is subsidizing the free edition? It's time to kill third party tax products.
  - dragontamer 11y ago
    Have you ever filled out a 1040EZ? Its easy as pie. Seriously. https://www.irs.gov/pub/irs-pdf/f1040ez.pdf https://www.irs.gov/pub/irs-pdf/f1040ez.pdf Its literally one page. The 2nd page is for the simplified instructions (full instructions / documentation is a lot more complicated... but if you qualify for the 1040EZ its a very very simple form) If the IRS could put the 1040EZ online on a free website, that'd be great. I think I can support this Senate bill that is more or less suggesting that. Unfortunately, I now own stocks, bonds, and am claiming deductions on mortgages and church contributions. So... I no longer qualify for the 1040EZ and have to use the more complicated form. But I bet a lot of normal people will benefit from the 1040EZ Form.
    - toomuchtodo 11y ago
      I haven't. My point is, the IRS should be able to tax on as much tax preparation software as they want, without for-profit companies preventing them from doing so. Intuit is simply rent-seeking, plain and simple. > Unfortunately, I now own stocks, bonds, and am claiming deductions on mortgages and church contributions. There is _no reason_ the IRS couldn't handle this data as well.
      - dragontamer 11y ago
        Intuit is actually a hell-of-a-lot better than the average situation, where most people pay $200 to get their taxes prepared by unregulated tax-preparers at H&R Block or whatever. Paid tax preparers make a mistake on roughly 60% of the returns, while the typical person only makes a mistake on 50% of their returns. So... yeah. In any case, I use $20 TaxACT but do miss Intuit's integration with ADP's payroll system and a lot of their databases. In any case, the $20 to $50 you spend on tax-preparation software is honestly a serious improvement to the status-quo... of paying an unregulated, mistake-heavy part-time tax preparer to do the job for you at roughly $200+. If we can switch everyone towards doing their own taxes with TurboTax Deluxe edition at $50, that would actually be an improvement. That's the sad state of tax preparation in the USA.
- criley2 11y ago
  This is only accurate for those earning W2 income only. Anyone who contracts at all or has any investment income cannot use EZ or Free.
- entee 11y ago
  It's still an annoying process. As someone who didn't itemize but had some weird tax situations (PhD student) it was always a pain. Also even if you have a drop dead simple tax situation, it's still navigating and filling out a form that reads like the worst spaghetti code. "Go to line 31 on form XYZ". Even if it cost people 30 minutes, that's still less than just writing a check and putting it in the envelope.
- st3v3r 11y ago
  So 2/3 of people would benefit from this system? And the 1/3 who do benefit from itemizing would just hire someone or use TurboTax like they do now?
- RodericDay 11y ago
  As a college student- doing odd-jobs, collecting weird scholarships, in strange living arrangements- it was extremely annoying and a pain every single time tax season came around and I had to go around collecting tax slips from various sources. Young me wants this so badly.
- pink_dinner 11y ago
  Exactly. Simpilifying the tax code basically jusy means less power over our own money. Once again, we are giving away more of our power for convenience.
- dionidium 11y ago
  "~ 1/3 of people itemize" "The middle class is who is going to get screwed out of deductions." I don't want to pick on you, but these two sentiments said so closely together proves that "middle class" means whatever the speaker wants it to mean.
- rconti 11y ago
  Sure it's the richest 1/3. I can't imagine anyone in, say, the top 5% who DON'T itemize. Less-wealthy property owners might own property in a low-enough cost-of-living and low-enough-tax state (or have bought long enough ago) that their mortgage interest and property tax is still less than the standard deduction.
  - harryh 11y ago
    That's very easy to imagine: - Have a job that pays enough to get you in the top 5% - Don't own a house - Live in one of the 7 states without an income tax Boom. You probably don't itemize.
    - pjc50 11y ago
      - Have a job that pays enough to get you in the top 5% - Don't own a house That's going to be a very small set of frequent-travelling professionals. Also, having a top 5% income but no savings/investment income from previous years of saved top 5% income seems unlikely.
      - harryh 11y ago
        That's going to be a very small set of frequent-travelling professionals. No it's not. It's a huge swath of technology workers (and other professionals) that live in cities with expensive housing. Many of the commenters on HN fall into this exact category! You're right about savings & investment income, but that won't have anything to do with your deduction status for most people.
        rconti 11y ago
        Not a lot of cities with expensive housing are in no-tax states though.
- rsync 11y ago
  "The people who don't itemize have almost no burden right now; you can fill out a 1040EZ or use TurboTax free edition." Which, by the way, is ridiculous. There is a very large swath of the US population (people like this, using 1040EZ) that should not file taxes at all. The government already knows what you made, it already knows what it withheld, and it already knows your (most likely) net refund. It's a pointless, stupid, almost spiteful waste of time to make people go through these motions - almost daring them to get the numbers wrong ... the numbers that the IRS already knows. Any substantive, meaningful tax reform needs to remove filing requirements for this type of taxpayer.
bcheung 11y ago
If you are working as a programmer in Silicon Valley your income is most likely high enough to itemize to deduct your state taxes from the Federal Adjusted Gross Income. Your deduction would exceed the standard deduction. Unless you know you can itemize your state taxes you are going to end up paying more in taxes. The default is to go with the standard deduction which would be throwing away money. IANAL but as per the text of the bill you won't be "eligible" if you itemize.

by CPLX 11y ago

vilhelm_s 11y ago

I wonder if there are any statistics on which deductions are used by what percentage of people? I don't think any of them apply to me, as far as I can tell from the million questions the tax software asks.

entee 11y ago
I'd love to find some of those too, but brief searching didn't yield anything. In general though, it seems some of the most popular itemized deductions are: 1.) Deduct state income tax 2.) Mortgage interest 3.) Child-oriented tax credits Most deductions seem to favor homeowners and families.

bpodgursky 11y ago

~ 1/3 of people itemize. And this doesn't mean it's the richest 1/3 -- it's the 1/3 who have homes, children, and other real responsibilities which get credits. Middle class. The people who don't itemize have almost no burden right now; you can fill out a 1040EZ or use TurboTax free edition. The middle class is who is going to get screwed out of deductions.

toomuchtodo 11y ago
> or use TurboTax free edition. Who do you think is subsidizing the free edition? It's time to kill third party tax products.
- dragontamer 11y ago
  Have you ever filled out a 1040EZ? Its easy as pie. Seriously. https://www.irs.gov/pub/irs-pdf/f1040ez.pdf https://www.irs.gov/pub/irs-pdf/f1040ez.pdf Its literally one page. The 2nd page is for the simplified instructions (full instructions / documentation is a lot more complicated... but if you qualify for the 1040EZ its a very very simple form) If the IRS could put the 1040EZ online on a free website, that'd be great. I think I can support this Senate bill that is more or less suggesting that. Unfortunately, I now own stocks, bonds, and am claiming deductions on mortgages and church contributions. So... I no longer qualify for the 1040EZ and have to use the more complicated form. But I bet a lot of normal people will benefit from the 1040EZ Form.
  - toomuchtodo 11y ago
    I haven't. My point is, the IRS should be able to tax on as much tax preparation software as they want, without for-profit companies preventing them from doing so. Intuit is simply rent-seeking, plain and simple. > Unfortunately, I now own stocks, bonds, and am claiming deductions on mortgages and church contributions. There is _no reason_ the IRS couldn't handle this data as well.
    - dragontamer 11y ago
      Intuit is actually a hell-of-a-lot better than the average situation, where most people pay $200 to get their taxes prepared by unregulated tax-preparers at H&R Block or whatever. Paid tax preparers make a mistake on roughly 60% of the returns, while the typical person only makes a mistake on 50% of their returns. So... yeah. In any case, I use $20 TaxACT but do miss Intuit's integration with ADP's payroll system and a lot of their databases. In any case, the $20 to $50 you spend on tax-preparation software is honestly a serious improvement to the status-quo... of paying an unregulated, mistake-heavy part-time tax preparer to do the job for you at roughly $200+. If we can switch everyone towards doing their own taxes with TurboTax Deluxe edition at $50, that would actually be an improvement. That's the sad state of tax preparation in the USA.
criley2 11y ago
This is only accurate for those earning W2 income only. Anyone who contracts at all or has any investment income cannot use EZ or Free.
entee 11y ago
It's still an annoying process. As someone who didn't itemize but had some weird tax situations (PhD student) it was always a pain. Also even if you have a drop dead simple tax situation, it's still navigating and filling out a form that reads like the worst spaghetti code. "Go to line 31 on form XYZ". Even if it cost people 30 minutes, that's still less than just writing a check and putting it in the envelope.
st3v3r 11y ago
So 2/3 of people would benefit from this system? And the 1/3 who do benefit from itemizing would just hire someone or use TurboTax like they do now?
RodericDay 11y ago
As a college student- doing odd-jobs, collecting weird scholarships, in strange living arrangements- it was extremely annoying and a pain every single time tax season came around and I had to go around collecting tax slips from various sources. Young me wants this so badly.
pink_dinner 11y ago
Exactly. Simpilifying the tax code basically jusy means less power over our own money. Once again, we are giving away more of our power for convenience.
dionidium 11y ago
"~ 1/3 of people itemize" "The middle class is who is going to get screwed out of deductions." I don't want to pick on you, but these two sentiments said so closely together proves that "middle class" means whatever the speaker wants it to mean.
rconti 11y ago
Sure it's the richest 1/3. I can't imagine anyone in, say, the top 5% who DON'T itemize. Less-wealthy property owners might own property in a low-enough cost-of-living and low-enough-tax state (or have bought long enough ago) that their mortgage interest and property tax is still less than the standard deduction.
- harryh 11y ago
  That's very easy to imagine: - Have a job that pays enough to get you in the top 5% - Don't own a house - Live in one of the 7 states without an income tax Boom. You probably don't itemize.
  - pjc50 11y ago
    - Have a job that pays enough to get you in the top 5% - Don't own a house That's going to be a very small set of frequent-travelling professionals. Also, having a top 5% income but no savings/investment income from previous years of saved top 5% income seems unlikely.
    - harryh 11y ago
      That's going to be a very small set of frequent-travelling professionals. No it's not. It's a huge swath of technology workers (and other professionals) that live in cities with expensive housing. Many of the commenters on HN fall into this exact category! You're right about savings & investment income, but that won't have anything to do with your deduction status for most people.
      - rconti 11y ago
        Not a lot of cities with expensive housing are in no-tax states though.
rsync 11y ago
"The people who don't itemize have almost no burden right now; you can fill out a 1040EZ or use TurboTax free edition." Which, by the way, is ridiculous. There is a very large swath of the US population (people like this, using 1040EZ) that should not file taxes at all. The government already knows what you made, it already knows what it withheld, and it already knows your (most likely) net refund. It's a pointless, stupid, almost spiteful waste of time to make people go through these motions - almost daring them to get the numbers wrong ... the numbers that the IRS already knows. Any substantive, meaningful tax reform needs to remove filing requirements for this type of taxpayer.

bcheung 11y ago

If you are working as a programmer in Silicon Valley your income is most likely high enough to itemize to deduct your state taxes from the Federal Adjusted Gross Income. Your deduction would exceed the standard deduction. Unless you know you can itemize your state taxes you are going to end up paying more in taxes. The default is to go with the standard deduction which would be throwing away money. IANAL but as per the text of the bill you won't be "eligible" if you itemize.