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> The IRS have all the data Not..entirely true. My 2016 taxes were professionally done, but we somehow forgot to include one of the something-something-1099 f
by ryanianian 8y ago
> The IRS have all the data
Not..entirely true.
My 2016 taxes were professionally done, but we somehow forgot to include one of the something-something-1099 forms from a brokerage firm. The brokerage reported some RSU stock-sells to the IRS but didn't report the cost-basis, and so the IRS assumed the cost-basis was $0 and thus taxed the full sale as income (effectively double-taxing all the RSUs). They just sent a tax bill for something like $20k plus a bunch of fees and interest.
It's an accounting-error so we won't owe much, but I doubt we would have seen this mistake if the IRS had just told us a total amount to pay. We have two tech-job incomes both of which are highly-dependent on equity, so we'd almost certainly end up getting a CPA to run all the numbers again anyway.
I'm a fan of reducing bureaucracy of double-reporting tax info, but I'm personally unwilling to trust that the IRS and various banks / brokerage systems are up to the task of generating trustworthy data (and/or erring on the side of the taxpayer in situations like this).
- pratheekrebala 8y agoI don't think this would prevent you from using a CPA or Itemizing your return. However, this system could be very beneficial for the 68.5% of the population that doesn't itemize[1]. [1] https://taxfoundation.org/who-itemizes-deductions/ https://taxfoundation.org/who-itemizes-deductions/
- ryanianian 8y agoI think it would still happen with standard/non-itemized deductions. This particular case was mis-reported income. But agreed that my case (and really any cases that involve capital-gains) are probably in the vast minority.
- philwelch 8y agoLots of people receive RSU's, and the cost basis issue is extremely common.
- seanmcdirmid 8y agoI never itemized and I’m pretty sure the IRS could never do my tax forms while I was in China...heck, they never even asked for anything like a W2 since my income was all foreign.
- s73v3r_ 8y agoI fail to see how this is an argument against making this an option, though.
- seanmcdirmid 8y agoItemizing isn’t the only thing that makes taxes too difficult to do automatically.
- BEEdwards 8y agoYes, but this isn't for the outliers who know they are outliers. This is for the people who right now are paying some company to essentially and unnecessarily siphon off some of their tax money.
- seanmcdirmid 8y agoI get it, but anyone making more than $100k probably has investments Schedule Ds and all that other crap to worry about. And anyone else can file a 1040EZ anyways. Not ideal for sure, but the hard case remains the hard case.
- philwelch 8y agoItemizing deductions is totally different from reporting cost basis on a stock sale.
- pratheekrebala 8y agoRight, I was just pointing out that OPs case is in the minority of tax filers and that making this option available would benefit a lot of tax-filers and wouldn't prevent OP from filing their taxes as they normally would.
- philwelch 8y agoI'm not sure people with RSU's are as small of a minority as you think. They're a fairly common form of compensation.
- dionidium 8y ago> Not..entirely true. Obviously. You should read categorical statements like this one as, "The IRS [often and in many of the most common cases] have all the data." That's a generally-applicable, useful, mental substitution that saves us from unnecessary and constant waffling and equivocation in everyday conversation.
- ryanianian 8y agoYou missed the conclusion/point of the reply. It's that I (personally) don't trust the government and banks/agencies enough to actually make this a trustworthy proposition, and I have data-points to back up my intuition.
- dionidium 8y agoI didn't miss the point, because the point only applies if you're itemizing in the first place and, as pratheekrebala mentions, we're talking about the vast majority of folks who don't. And, in any case, the question isn't, "Will the IRS ever make a mistake?" Obviously they will. The question is, "Will the IRS make fewer mistakes than the mass of folks who don't itemize and who have simple tax situations?" I think that's clearly true.
- jjeaff 8y agoThey really don't have even close to all the data. The irs will generally have income numbers, as those generally must be reported through 1099k, 1099, and w2, etc. But they have no information on your expenses, depreciation, etc. So they only know your revenues, not your expenses. And this applies for business as well as personal.
- ghaff 8y agoRSU cost-basis reporting isn't at all intuitive for some reason. The information you need is in brokerage details but, as I recall, the summary realized gains use a cost basis of $0.
- southphillyman 8y agoThis happened to me as well, they processed every transaction as pure profit. I don't see how this disproves that they had the data though. They literally had every transaction I made that year as reported by the brokerage, they just didn't use the data right largely because I'm still required to spoon it to them correctly.
- slavik81 8y agoWouldn't it be useful if they gave you a filled version of the return forms? Then it would be easy to check for discrepancies between the IRS and CPA forms, and you'd easily be able to tell if either of them forgot something. If both independently arrived at the same result, you could be very sure you got it right.
- iris-digital 8y agoReturn will still need to be verified by the taxpayer in either case.
- philwelch 8y agoThis is a very common issue, but I'd rather the IRS did 95% of my tax return, sent it to me, and gave me the opportunity to say, "actually, here's my cost basis on that 1099" before me approving it.
- jrockway 8y agoOh man, was this Schwab that did that to you? This happened to me and I just paid... but I did not check the cost basis. (I should know, too, because Schwab did this on another year and I caught it.)
- ryanianian 8y agoIt was Morgan Stanley, but I'm sure there's similar things with most brokerages. If you think you over-paid in error it's definitely worth your time to go back and amend it, it's not like your money is gone.
- lowercased 8y ago> The brokerage reported some RSU stock-sells to the IRS but didn't report the cost-basis, and so the IRS assumed the cost-basis was $0 and thus taxed the full sale as income Similar, yet ... stupider... Did some standard stock buy/sells in a year, and the brokerage reported all the sales as full income, and no original cost, so they'd reported that I'd had something like $120k in 'income' ... No penalties for them for filing bad data, but it took me a while and some CPA time to respond accordingly. :/