5 ms·

The IRS already knows what taxes you owe. In most cases they could just send you a bill.

by texuf 10y ago

bluedino 10y ago
Your state and local government would also have to send you a bill.
tormeh 10y ago
Yeah, if they can check if I've paid the correct taxes then they know how much I should pay. Can't they just tell me?
- sokoloff 10y ago
  No. How would they know how many charitable donations you made? How would they know how many miles you drove for your business? How would they know how much you spent on travel for your company? How would they know how much you paid for the raw materials for the products you sold? Or your business utilities, rent, etc? How would they know your unreimbursed medical expenses or casualty losses?
  - bluejekyll 10y ago
    The issue here is that taxes have been over complicated with deductions. If it was just simply based off earnings and there were no deductions it would be simple. Obviously taxes would need to be reduced if all deductions were removed. I for one would love to see a zero deduction tax law, and simple validation of earnings.
    - sokoloff 10y ago
      I think you're still stuck on W-2 employees (which is a pretty large and common case, I admit, and I'd love to see that simplified). You will always need accounting for businesses (IMO). Suppose you ran a lemonade stand. You bought some equipment, some raw materials, you used some utilities, you used some space, you bought a banner and some flyers to advertise your stand, you hired a lawyer to help set it up, you bought a business license, you bought cups and napkins, you took in some receipts. Let's presume you turned a profit. On what figure should you pay taxes? The gross receipts (every dollar you took in)? Or just the profit (receipts minus expenses)? And that's just a lemonade stand; imagine the complexity of a larger scale business...
      - bluejekyll 10y ago
        Sure. Let's focus on the individual return first. In terms of businesses, I hold somewhat controversial belief that businesses should not be taxed. Their employees are taxed, and people recieving dividends are taxed. By not taxing businesses, we'd also balance out the unfairness in the system today, where large companies are able to offset all profits with deductions, and small companies which actually pay quite a bit. The point is to bring fairness to the tax system.
        rmah 10y ago
        That would only be reasonable if you think that only poor and middle-income people should pay taxes. Everyone else would be able to opt out via a series of corporate shells.
        bluejekyll 10y ago
        They're already doing that.
        sokoloff 10y ago
        I don't know that I agree with the fairness points you raised, but from a sensibility standpoint, I like the idea. Corporate income tax is only 9% of total federal receipts, so it seems like we could make that up without incredibly burdensome changes. It would also make the US competitive again as a corporate domicile for multi-nationals (though without taxing them, it's not clear how advantageous that would be). I do worry that it would raise other forms of exploitation of loopholes though. There would be less pressure to report payroll expenses (decreasing compliance and decreasing payroll taxes as anyone you pay off the books is cheaper out of pocket for you per dollar they receive) and I suspect we'd see a lot more people not taking large salaries at companies they control but rather funding their lifestyle needs with perks and loans from the company, the repayment of which would not be taxed. Payroll taxes are 1/3 of federal receipts; any significant decrease in compliance there would perhaps be more damaging than losing the corporate tax income directly.
        10y ago
nodesocket 10y ago
Only true if you have a simple standard w-2 job. With stocks, capital gains, dividends, write-offs, company you need to handle these manually and the government doesn't know your write-offs and all sources of income.
- ceejayoz 10y ago
  Capital gains and dividends get reported to the IRS. If nothing else, the IRS could say "here's the info we have, feel free to review and add anything we don't know about".
sokoloff 10y ago
For a W-2 employee taking the standard deduction, perhaps. The IRS cannot correctly calculate what the typical small business owner owes, what the typical real estate investor owes, what the typical upper middle class family owes, because they don't have all the information available to them.
- 67726e 10y ago
  What's your point? They can help all the typical cases. If you need additional help, then you can find an accountant to help.
  - sokoloff 10y ago
    My point is that "The IRS already knows what taxes you owe." is patently false in the vast majority of cases. In 2012 (the last year for which I have a breakdown: https://www.irs.gov/pub/irs-soi/12rswinbulreturnfilings.pdf https://www.irs.gov/pub/irs-soi/12rswinbulreturnfilings.pdf ), of the 239 million returns filed, about 143 million are individual returns. Of the 143 million individual returns, about 13% or 18.6 million use 1040EZ ( http://www.freeby50.com/2012/12/what-percent-of-people-file-1040-1040a.html http://www.freeby50.com/2012/12/what-percent-of-people-file-... ). The IRS probably has enough information to file 1040EZs for most people, but certainly not enough for 1040A, 1040, or most business returns. So, of the 293 million returns filed, about 18.6 million or 6.3% of them could be auto-filed by the IRS. About 1 in 16 total returns and about 1 in 8 personal returns. To me, 6.3% (or even 13%) is a far cry from "all the typical cases". They can mostly handle one particular case; that might be the case that you personally have; I have no objection to them offering that as a service. Just don't be confused and think that that that's all the typical cases.
    - smsm42 10y ago
      Great analysis. One thing to add though - some of these people have to also file state returns. Which in TurboTax pretty much automatic, but without it it'd be separate return which has to be filed separately - which means same work as for Federal, so people would still need something like TurboTax - unless also each state that has income tax makes their own system too.
seanmcdirmid 10y ago
For the last 9 years, I've been filing tax returns on money I've earned abroad: no 1099 and definitely no W2. One year somehow they blew away my foreign tax credit and said I owed $30K (note: they were really nice about it and I eventually was able to fix the mistake). Taxes get complicated REALLY quickly as you move beyond single W2 earnings.

The IRS already knows what taxes you owe. In most cases they could just send you a bill.

by texuf 10y ago

The IRS already knows what taxes you owe. In most cases they could just send you a bill.

bluedino 10y ago

Your state and local government would also have to send you a bill.

tormeh 10y ago

Yeah, if they can check if I've paid the correct taxes then they know how much I should pay. Can't they just tell me?

sokoloff 10y ago
No. How would they know how many charitable donations you made? How would they know how many miles you drove for your business? How would they know how much you spent on travel for your company? How would they know how much you paid for the raw materials for the products you sold? Or your business utilities, rent, etc? How would they know your unreimbursed medical expenses or casualty losses?
- bluejekyll 10y ago
  The issue here is that taxes have been over complicated with deductions. If it was just simply based off earnings and there were no deductions it would be simple. Obviously taxes would need to be reduced if all deductions were removed. I for one would love to see a zero deduction tax law, and simple validation of earnings.
  - sokoloff 10y ago
    I think you're still stuck on W-2 employees (which is a pretty large and common case, I admit, and I'd love to see that simplified). You will always need accounting for businesses (IMO). Suppose you ran a lemonade stand. You bought some equipment, some raw materials, you used some utilities, you used some space, you bought a banner and some flyers to advertise your stand, you hired a lawyer to help set it up, you bought a business license, you bought cups and napkins, you took in some receipts. Let's presume you turned a profit. On what figure should you pay taxes? The gross receipts (every dollar you took in)? Or just the profit (receipts minus expenses)? And that's just a lemonade stand; imagine the complexity of a larger scale business...
    - bluejekyll 10y ago
      Sure. Let's focus on the individual return first. In terms of businesses, I hold somewhat controversial belief that businesses should not be taxed. Their employees are taxed, and people recieving dividends are taxed. By not taxing businesses, we'd also balance out the unfairness in the system today, where large companies are able to offset all profits with deductions, and small companies which actually pay quite a bit. The point is to bring fairness to the tax system.
      - rmah 10y ago
        That would only be reasonable if you think that only poor and middle-income people should pay taxes. Everyone else would be able to opt out via a series of corporate shells.
        bluejekyll 10y ago
        They're already doing that.
      - sokoloff 10y ago
        I don't know that I agree with the fairness points you raised, but from a sensibility standpoint, I like the idea. Corporate income tax is only 9% of total federal receipts, so it seems like we could make that up without incredibly burdensome changes. It would also make the US competitive again as a corporate domicile for multi-nationals (though without taxing them, it's not clear how advantageous that would be). I do worry that it would raise other forms of exploitation of loopholes though. There would be less pressure to report payroll expenses (decreasing compliance and decreasing payroll taxes as anyone you pay off the books is cheaper out of pocket for you per dollar they receive) and I suspect we'd see a lot more people not taking large salaries at companies they control but rather funding their lifestyle needs with perks and loans from the company, the repayment of which would not be taxed. Payroll taxes are 1/3 of federal receipts; any significant decrease in compliance there would perhaps be more damaging than losing the corporate tax income directly.
        10y ago

nodesocket 10y ago

Only true if you have a simple standard w-2 job. With stocks, capital gains, dividends, write-offs, company you need to handle these manually and the government doesn't know your write-offs and all sources of income.

ceejayoz 10y ago
Capital gains and dividends get reported to the IRS. If nothing else, the IRS could say "here's the info we have, feel free to review and add anything we don't know about".

sokoloff 10y ago

For a W-2 employee taking the standard deduction, perhaps. The IRS cannot correctly calculate what the typical small business owner owes, what the typical real estate investor owes, what the typical upper middle class family owes, because they don't have all the information available to them.

67726e 10y ago
What's your point? They can help all the typical cases. If you need additional help, then you can find an accountant to help.
- sokoloff 10y ago
  My point is that "The IRS already knows what taxes you owe." is patently false in the vast majority of cases. In 2012 (the last year for which I have a breakdown: https://www.irs.gov/pub/irs-soi/12rswinbulreturnfilings.pdf https://www.irs.gov/pub/irs-soi/12rswinbulreturnfilings.pdf ), of the 239 million returns filed, about 143 million are individual returns. Of the 143 million individual returns, about 13% or 18.6 million use 1040EZ ( http://www.freeby50.com/2012/12/what-percent-of-people-file-1040-1040a.html http://www.freeby50.com/2012/12/what-percent-of-people-file-... ). The IRS probably has enough information to file 1040EZs for most people, but certainly not enough for 1040A, 1040, or most business returns. So, of the 293 million returns filed, about 18.6 million or 6.3% of them could be auto-filed by the IRS. About 1 in 16 total returns and about 1 in 8 personal returns. To me, 6.3% (or even 13%) is a far cry from "all the typical cases". They can mostly handle one particular case; that might be the case that you personally have; I have no objection to them offering that as a service. Just don't be confused and think that that that's all the typical cases.
  - smsm42 10y ago
    Great analysis. One thing to add though - some of these people have to also file state returns. Which in TurboTax pretty much automatic, but without it it'd be separate return which has to be filed separately - which means same work as for Federal, so people would still need something like TurboTax - unless also each state that has income tax makes their own system too.

seanmcdirmid 10y ago

For the last 9 years, I've been filing tax returns on money I've earned abroad: no 1099 and definitely no W2. One year somehow they blew away my foreign tax credit and said I owed $30K (note: they were really nice about it and I eventually was able to fix the mistake). Taxes get complicated REALLY quickly as you move beyond single W2 earnings.