4 ms·

So why do we have to file? Why cant the IRS just tell us every year if we owe or not and how much?

dmitrygr 7y ago
Because intuit lobbie$ hard for that. They make Lot$ of money on you having to file your own taxe$
yellowstuff 7y ago
Two reasons: * H&R Block and Intuit have good lobbyists who prevent it from happening. * Republicans want to make filing taxes difficult so that people won't like taxes. In particular Grover Norquist has managed to get essentially all federal level Republican politicians to sign a pledge not to raise taxes, and Norquist considers making filing simpler to be effectively raising taxes. https://www.politico.com/agenda/story/2018/07/18/tax-filing-congress-irs-000683 https://www.politico.com/agenda/story/2018/07/18/tax-filing-...
- buzzert 7y ago
  I'm sure those aren't the only reasons. Quite a lot of people get away with tax fraud. If the IRS really knew everything and filing taxes was just a pointless exercise, why is fraud so prevalent?
  - deleted 7y ago
    [deleted]
  - seren 7y ago
    Speaking from a European country, employers are reporting salaries to the revenue service. The banks are reporting capitial gains from taxable accounts. So basically the only reasons for filing taxes are for exotic revenues (for example crypto !) or to ask for exemptions. Free lancers still have report their revenue themselves but I would say that for a very very vast majority of people, they already have all the information needed. Actually we receive our forms with some fields (salary for example) pre filled, you only have to check if this is correct. The tax form is just some kind of confirmation, most of the time.
    - majewsky 7y ago
      Speaking as a German. Filing tax forms is almost always a good idea for salaried workers because of the plethora of expenses that can be deducted from your taxable income: - handyman bills - expenses for the commute to work - donations to political parties and registered charities (I save 400€ in taxes on that item alone because of regular donations to my hackerspace) - some types of insurance premiums - etc.
  - belltaco 7y ago
    Long read but worth it. https://www.propublica.org/article/how-the-irs-was-gutted https://www.propublica.org/article/how-the-irs-was-gutted
  - yellowstuff 7y ago
    Sure, taxes couldn't be fully automated, but those are the reasons the IRS won't just send you a pre-filled form with the information they have, and instead makes the taxpayer duplicate that information.
  - VLM 7y ago
    Massive social engineering mean the IRS would need every financial and legal transaction you've ever participated in. Which they clearly do not. For example, we don't have a simple tax system based on a percentage of salary. The amount they want as a tax depends on your marital status, how many kids, how much your spouse earns, and if you itemize deductions it gets even worse WRT every medical provider's bill you've ever paid and weird details of interest payments on mortgage loans. Honestly the error rate of trying to gather all that big brother data is almost certain to be higher than the fraud rate of people in general. Also people push agendas, so if you want to spread the idea that fraud is rampant, if I get free coffee at church and starbucks has proven 52 coffees per year is about five hundred bucks, not declaring that coffee as income is fraud; with paper money and barter the IRS can't get all "weird" about little details, but with digital currency if you buy a donut, there will be a reckoning simply because its possible.
    - sjy 7y ago
      It's not just a matter of the paperwork being too burdensome; free coffees at church are simply not income. Neither is $20 in a birthday card from your grandma. Of course, there are grey areas where it's much harder to draw the line, but it's wrong to suggest that the IRS would tax every transaction if it could.
      - rphlx 7y ago
        It doesn't necessarily tax everything but the IRS does seek God-level knowledge/insight into every transaction - and then it just exempts certain things based on size or other factors. If you are deducting charitable contributions to the church they actually do expect you to subtract out the value of coffee, meals, etc. Donate $100 to some non-profit that sends you a t-shirt as a thank-you? Your deduction is $87, not $100, because the t-shirt has to be valued at $13 or something similar that they consider reasonable. Somewhere they actually have federal employees tasked with determining this year's acceptable minimum value for a t-shirt. The $20 gift from grandma is exempt, but not because they don't demand insight into intra-family transfers.. it's only non-taxable because of its size. If you have a rich grandma and she gives you $20k, that needs to be reported.. even if no tax is ultimately due, it probably reduces the future value of her estate tax exemption. Dying is a very complex taxable event! If you want to follow the thousands of pages of rules to the letter - sufficient to sign a letter declaring under penalty of purjury, etc - the tracking and compliance burden on many US taxpayers is enormous, even with assistance from the commercial closed-source SW packages that you are more or less forced into buying each year because they won't let you e-file with them directly over HTTPS+JSON or whatever.
  - bduerst 7y ago
    Believe it or not, those really are the main reasons why taxes still suck in the U.S. There's a recent Planet Money podcast on it. The regulatory lock in for tax filing is ridiculously profitable, and companies like Intuit certainly rent-seek to solidify their revenue stream. https://www.npr.org/sections/money/2017/03/22/521132960/episode-760-tax-hero https://www.npr.org/sections/money/2017/03/22/521132960/epis...
- flagfeedingusa1 7y ago
  Ahh yes, I knew it was those evil republicans at it again! Thank god for altruistic totally incorruptible democrats that are trying to save us from this menace!
PeterisP 7y ago
No matter what the IRS does, "tell us every year if we owe or not and how much" can only apply for standard sources of income (e.g. salaries) which get fully reported to IRS by someone else - even in countries where "tell us every year if we owe or not and how much" is the main system, if you'd get some nonstandard income (like getting paid for some goods in bitcoin) you have a duty to file that.
xamuel 7y ago
A serious answer that isn't just "lobbyists": Even if the IRS had perfect info about all your income and investments, there are decisions you can make which effectively make taxes non-deterministic. Suppose on two different dates, you bought shares of a company. Then on a later date, you sold one share. You get to choose which purchase date to count the sale as being against. This is important because you pay on the profit made based on that assumption. It also effects whether you pay short-term or long-term capital gains taxes for the sale. Say for example you bought 1 share for $100 two years ago, and another share for $500 one month ago. One week ago, you sold one share for $1000. If you count it as selling the $100 share, then you must pay taxes on $900 in profit, BUT you enjoy the lower long-term capital gain tax rate. If you count it as selling the $500 share, you must pay taxes on only $500 in profits, BUT you suffer the short-term capital gain tax rate. Which of the two should you do (if you're a hypothetical perfectly rational actor who always makes absolutely optimal decisions)? Depends on what you plan to do with the other share, what you think is going to happen to the stock price, and so many other factors you could write a 10,000-page book about them...
- sowbug 7y ago
  Lot identification actually isn't a tax-time decision; it's a transaction-time decision. If you don't identify the specific lot you're selling (or more specifically if your broker isn't given or doesn't follow instructions which lot to sell), then in general sales are treated as FIFO, which might not be surprising because that characterization leads to maximum gain in a rising market. See Internal Revenue Service Publication 550 for more. This means that the tax treatment of a stock sale is in fact fixed at the time of transaction; moreover, it's entirely automatable by standing instructions to the brokerage, which most brokerages routinely offer as a feature ("tax optimizer" or "tax-lot optimizer" or similar language). (This of course is all US tax code, not applicable to US states or other countries.)
  - xamuel 7y ago
    Not a tax lawyer, but reporting of lot identification is a tax-time decision, at least for the things being discussed in this thread. If it's transaction-time then that's totally unenforceable since this discussion applies to things as diverse as trading physical goods for other physical goods in an ad hoc unrecorded environment. It would make no sense for it to automatically be FIFO anyway, for example a person with amnesia might temporarily forget their ownership of longer-term holdings. And for just one example where FIFO would be suboptimal despite a rising market, merely suppose that you know you're about to die and your children are about to inherit everything with a higher cost basis, but you need a bit of cash right now. (I highly doubt tax optimizer software has achieved the strong AI that would be necessary to know if you're about to die.)
sjy 7y ago
Historically, it was not possible for the IRS to figure it out without an investigation that costs more than most people pay in taxes. Computers exist now, but changing the status quo would be politically challenging, and may still involve a net cost to the budget because the government would be performing a service that was previously the responsibility of taxpayers. However, the experience of other countries suggests that partial automation is well worth the investment, even though full automation is impossible, so the other commenters griping about lobbyists are correct too.

Because intuit lobbie$ hard for that. They make Lot$ of money on you having to file your own taxe$

Two reasons: * H&R Block and Intuit have good lobbyists who prevent it from happening. * Republicans want to make filing taxes difficult so that people won't like taxes. In particular Grover Norquist has managed to get essentially all federal level Republican politicians to sign a pledge not to raise taxes, and Norquist considers making filing simpler to be effectively raising taxes. https://www.politico.com/agenda/story/2018/07/18/tax-filing-congress-irs-000683 https://www.politico.com/agenda/story/2018/07/18/tax-filing-...

buzzert 7y ago
I'm sure those aren't the only reasons. Quite a lot of people get away with tax fraud. If the IRS really knew everything and filing taxes was just a pointless exercise, why is fraud so prevalent?
- deleted 7y ago
  [deleted]
- seren 7y ago
  Speaking from a European country, employers are reporting salaries to the revenue service. The banks are reporting capitial gains from taxable accounts. So basically the only reasons for filing taxes are for exotic revenues (for example crypto !) or to ask for exemptions. Free lancers still have report their revenue themselves but I would say that for a very very vast majority of people, they already have all the information needed. Actually we receive our forms with some fields (salary for example) pre filled, you only have to check if this is correct. The tax form is just some kind of confirmation, most of the time.
  - majewsky 7y ago
    Speaking as a German. Filing tax forms is almost always a good idea for salaried workers because of the plethora of expenses that can be deducted from your taxable income: - handyman bills - expenses for the commute to work - donations to political parties and registered charities (I save 400€ in taxes on that item alone because of regular donations to my hackerspace) - some types of insurance premiums - etc.
- belltaco 7y ago
  Long read but worth it. https://www.propublica.org/article/how-the-irs-was-gutted https://www.propublica.org/article/how-the-irs-was-gutted
- yellowstuff 7y ago
  Sure, taxes couldn't be fully automated, but those are the reasons the IRS won't just send you a pre-filled form with the information they have, and instead makes the taxpayer duplicate that information.
- VLM 7y ago
  Massive social engineering mean the IRS would need every financial and legal transaction you've ever participated in. Which they clearly do not. For example, we don't have a simple tax system based on a percentage of salary. The amount they want as a tax depends on your marital status, how many kids, how much your spouse earns, and if you itemize deductions it gets even worse WRT every medical provider's bill you've ever paid and weird details of interest payments on mortgage loans. Honestly the error rate of trying to gather all that big brother data is almost certain to be higher than the fraud rate of people in general. Also people push agendas, so if you want to spread the idea that fraud is rampant, if I get free coffee at church and starbucks has proven 52 coffees per year is about five hundred bucks, not declaring that coffee as income is fraud; with paper money and barter the IRS can't get all "weird" about little details, but with digital currency if you buy a donut, there will be a reckoning simply because its possible.
  - sjy 7y ago
    It's not just a matter of the paperwork being too burdensome; free coffees at church are simply not income. Neither is $20 in a birthday card from your grandma. Of course, there are grey areas where it's much harder to draw the line, but it's wrong to suggest that the IRS would tax every transaction if it could.
    - rphlx 7y ago
      It doesn't necessarily tax everything but the IRS does seek God-level knowledge/insight into every transaction - and then it just exempts certain things based on size or other factors. If you are deducting charitable contributions to the church they actually do expect you to subtract out the value of coffee, meals, etc. Donate $100 to some non-profit that sends you a t-shirt as a thank-you? Your deduction is $87, not $100, because the t-shirt has to be valued at $13 or something similar that they consider reasonable. Somewhere they actually have federal employees tasked with determining this year's acceptable minimum value for a t-shirt. The $20 gift from grandma is exempt, but not because they don't demand insight into intra-family transfers.. it's only non-taxable because of its size. If you have a rich grandma and she gives you $20k, that needs to be reported.. even if no tax is ultimately due, it probably reduces the future value of her estate tax exemption. Dying is a very complex taxable event! If you want to follow the thousands of pages of rules to the letter - sufficient to sign a letter declaring under penalty of purjury, etc - the tracking and compliance burden on many US taxpayers is enormous, even with assistance from the commercial closed-source SW packages that you are more or less forced into buying each year because they won't let you e-file with them directly over HTTPS+JSON or whatever.
- bduerst 7y ago
  Believe it or not, those really are the main reasons why taxes still suck in the U.S. There's a recent Planet Money podcast on it. The regulatory lock in for tax filing is ridiculously profitable, and companies like Intuit certainly rent-seek to solidify their revenue stream. https://www.npr.org/sections/money/2017/03/22/521132960/episode-760-tax-hero https://www.npr.org/sections/money/2017/03/22/521132960/epis...
flagfeedingusa1 7y ago
Ahh yes, I knew it was those evil republicans at it again! Thank god for altruistic totally incorruptible democrats that are trying to save us from this menace!

PeterisP 7y ago

No matter what the IRS does, "tell us every year if we owe or not and how much" can only apply for standard sources of income (e.g. salaries) which get fully reported to IRS by someone else - even in countries where "tell us every year if we owe or not and how much" is the main system, if you'd get some nonstandard income (like getting paid for some goods in bitcoin) you have a duty to file that.

xamuel 7y ago

A serious answer that isn't just "lobbyists": Even if the IRS had perfect info about all your income and investments, there are decisions you can make which effectively make taxes non-deterministic. Suppose on two different dates, you bought shares of a company. Then on a later date, you sold one share. You get to choose which purchase date to count the sale as being against. This is important because you pay on the profit made based on that assumption. It also effects whether you pay short-term or long-term capital gains taxes for the sale. Say for example you bought 1 share for $100 two years ago, and another share for $500 one month ago. One week ago, you sold one share for $1000. If you count it as selling the $100 share, then you must pay taxes on $900 in profit, BUT you enjoy the lower long-term capital gain tax rate. If you count it as selling the $500 share, you must pay taxes on only $500 in profits, BUT you suffer the short-term capital gain tax rate. Which of the two should you do (if you're a hypothetical perfectly rational actor who always makes absolutely optimal decisions)? Depends on what you plan to do with the other share, what you think is going to happen to the stock price, and so many other factors you could write a 10,000-page book about them...

sowbug 7y ago
Lot identification actually isn't a tax-time decision; it's a transaction-time decision. If you don't identify the specific lot you're selling (or more specifically if your broker isn't given or doesn't follow instructions which lot to sell), then in general sales are treated as FIFO, which might not be surprising because that characterization leads to maximum gain in a rising market. See Internal Revenue Service Publication 550 for more. This means that the tax treatment of a stock sale is in fact fixed at the time of transaction; moreover, it's entirely automatable by standing instructions to the brokerage, which most brokerages routinely offer as a feature ("tax optimizer" or "tax-lot optimizer" or similar language). (This of course is all US tax code, not applicable to US states or other countries.)
- xamuel 7y ago
  Not a tax lawyer, but reporting of lot identification is a tax-time decision, at least for the things being discussed in this thread. If it's transaction-time then that's totally unenforceable since this discussion applies to things as diverse as trading physical goods for other physical goods in an ad hoc unrecorded environment. It would make no sense for it to automatically be FIFO anyway, for example a person with amnesia might temporarily forget their ownership of longer-term holdings. And for just one example where FIFO would be suboptimal despite a rising market, merely suppose that you know you're about to die and your children are about to inherit everything with a higher cost basis, but you need a bit of cash right now. (I highly doubt tax optimizer software has achieved the strong AI that would be necessary to know if you're about to die.)

sjy 7y ago

Historically, it was not possible for the IRS to figure it out without an investigation that costs more than most people pay in taxes. Computers exist now, but changing the status quo would be politically challenging, and may still involve a net cost to the budget because the government would be performing a service that was previously the responsibility of taxpayers. However, the experience of other countries suggests that partial automation is well worth the investment, even though full automation is impossible, so the other commenters griping about lobbyists are correct too.