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That's not really true. The IRS knows exactly what your investment income is if it is invested through a reputable broker. They all have to inform the IRS of a

by bwanab 4y ago

That's not really true. The IRS knows exactly what your investment income is if it is invested through a reputable broker. They all have to inform the IRS of all your transactions, dividends and interest. Even for property, the vast majority of the property that people own is the house they live in and sales on home real estate are public information.

runako 4y ago
You're missing huge segments of income and deductions that are opaque to the IRS. In other cases, the information the IRS needs to calculate your tax isn't available until everyone else files their taxes (cyclic dependency). Some examples: - Investors in a local restaurant may receive dividends which are not disclosed to the IRS until the restaurant files taxes. - Those dividends may reach a person via intermediaries. For example, a person receives her share of dividends from all the investments from an investment company in which she is an investor. That company may also have in turn invested into other investment companies. - A person inherits stock and migrates it to her brokerage account. Subsequently, she sells it. Neither the original brokerage nor her brokerage knows her cost basis and therefore can't know what portion of the proceeds are taxable. - Inheritances can get messy, in particular because in some cases the IRS needs to know the size of the estate where the inheritance originated in order to calculate the tax. - Taxes, tips, and direct crypto sales are all taxable events of which the IRS may have no data. - Rents: you don't tell the IRS how much rent you pay; the corollary is that the IRS doesn't know how much rent the landlord took in. And even if they did, to calculate the tax they also need to know the sum of expenses for the year. To calculate that, you may need to know the financing of the property. There are similarly many cases on the deductions side of the ledger where a naive approach will end up over-collecting from taxpayers (people would love that). (Yes, some of these could change if we changed our tax code. But that's not something the IRS is able to do.)
- jedberg 4y ago
  How many people do you think are getting any of these types of income? The answer is almost none. Almost everyone in the country has nothing but W2 income and maybe a few things on a 1099 from a broker. (Tips are supposed to be in your W2, FYI)
  - pfisch 4y ago
    Basically every small business owner gets a schedule K
    - jedberg 4y ago
      Which the government already has a copy of and can add to your taxes automatically.
- criddell 4y ago
  I think the idea is the government notifies you that if you do nothing, this is your tax situation. You still would have the option to file if you are one of the few people that have the issues you list. The idea is to get a better system for most people, not a perfect system for all people.
  - bwanab 4y ago
    Exactly. A requirement for a perfect system would mean a better system for the vast majority would be impossible.
sokoloff 4y ago
Reporting of basis (to the IRS) for publicly traded shares was required only starting for purchases in 2011 (2012 for dividend reinvestment plans). Sale prices of houses are public in some jurisdictions but not in others. Improvements are not reported to the IRS of course, some of which add to the basis. Schedule C would be entirely impossible for the IRS to calculate for you. Automated filing is not an impossible task for everyone, but it’s far from perfectly automatible.
- jedberg 4y ago
  Almost no taxpayers have that kind of income though. Most everyone just has W2 and maybe some 1098/1099s.
  - sokoloff 4y ago
    There were about 28 million Schedule C filings against about 148 million humans filing returns in 2019.
    - jedberg 4y ago
      Yes, and they could still file those Schedule Cs against their automatic tax bill. Schedule C is totally separate, and could even be filed totally separately just like a business return.
      - sokoloff 4y ago
        Schedule C is not totally separate under current tax law. 1040-Schedule-C feeds into 1040-Schedule-1 (line 3), which feeds into 1040 (line 10).
        jedberg 4y ago
        But they easily could be. You fill out a Schedule C and it changes one line on your 1040. If the government filled out your 1040 for you, you'd do your Schedule C and 1, and then fill that into the one line on your pre-filled 1040.
russdill 4y ago
For purposes of this discussion, and most importantly for the tax payer for which this system imposes the most pointless hardship, absolutely, yes, let's get it done. Now. But. The tax code is needlessly and intentionally convoluted. For a large number of tax payers, you get all sorts of choices on how to file things, how to declare things, what years to declare what, etc, etc, etc. Many of these choices will be based on what you expect to occur next quarter, next year, etc. People in these situations can typically afford to pay an accountant several hundred or thousand dollars a year to help them make the optimal decisions.

by bwanab 4y ago

runako 4y ago

You're missing huge segments of income and deductions that are opaque to the IRS. In other cases, the information the IRS needs to calculate your tax isn't available until everyone else files their taxes (cyclic dependency). Some examples: - Investors in a local restaurant may receive dividends which are not disclosed to the IRS until the restaurant files taxes. - Those dividends may reach a person via intermediaries. For example, a person receives her share of dividends from all the investments from an investment company in which she is an investor. That company may also have in turn invested into other investment companies. - A person inherits stock and migrates it to her brokerage account. Subsequently, she sells it. Neither the original brokerage nor her brokerage knows her cost basis and therefore can't know what portion of the proceeds are taxable. - Inheritances can get messy, in particular because in some cases the IRS needs to know the size of the estate where the inheritance originated in order to calculate the tax. - Taxes, tips, and direct crypto sales are all taxable events of which the IRS may have no data. - Rents: you don't tell the IRS how much rent you pay; the corollary is that the IRS doesn't know how much rent the landlord took in. And even if they did, to calculate the tax they also need to know the sum of expenses for the year. To calculate that, you may need to know the financing of the property. There are similarly many cases on the deductions side of the ledger where a naive approach will end up over-collecting from taxpayers (people would love that). (Yes, some of these could change if we changed our tax code. But that's not something the IRS is able to do.)

jedberg 4y ago
How many people do you think are getting any of these types of income? The answer is almost none. Almost everyone in the country has nothing but W2 income and maybe a few things on a 1099 from a broker. (Tips are supposed to be in your W2, FYI)
- pfisch 4y ago
  Basically every small business owner gets a schedule K
  - jedberg 4y ago
    Which the government already has a copy of and can add to your taxes automatically.
criddell 4y ago
I think the idea is the government notifies you that if you do nothing, this is your tax situation. You still would have the option to file if you are one of the few people that have the issues you list. The idea is to get a better system for most people, not a perfect system for all people.
- bwanab 4y ago
  Exactly. A requirement for a perfect system would mean a better system for the vast majority would be impossible.

sokoloff 4y ago

Reporting of basis (to the IRS) for publicly traded shares was required only starting for purchases in 2011 (2012 for dividend reinvestment plans). Sale prices of houses are public in some jurisdictions but not in others. Improvements are not reported to the IRS of course, some of which add to the basis. Schedule C would be entirely impossible for the IRS to calculate for you. Automated filing is not an impossible task for everyone, but it’s far from perfectly automatible.

jedberg 4y ago
Almost no taxpayers have that kind of income though. Most everyone just has W2 and maybe some 1098/1099s.
- sokoloff 4y ago
  There were about 28 million Schedule C filings against about 148 million humans filing returns in 2019.
  - jedberg 4y ago
    Yes, and they could still file those Schedule Cs against their automatic tax bill. Schedule C is totally separate, and could even be filed totally separately just like a business return.
    - sokoloff 4y ago
      Schedule C is not totally separate under current tax law. 1040-Schedule-C feeds into 1040-Schedule-1 (line 3), which feeds into 1040 (line 10).
      - jedberg 4y ago
        But they easily could be. You fill out a Schedule C and it changes one line on your 1040. If the government filled out your 1040 for you, you'd do your Schedule C and 1, and then fill that into the one line on your pre-filled 1040.

russdill 4y ago

For purposes of this discussion, and most importantly for the tax payer for which this system imposes the most pointless hardship, absolutely, yes, let's get it done. Now. But. The tax code is needlessly and intentionally convoluted. For a large number of tax payers, you get all sorts of choices on how to file things, how to declare things, what years to declare what, etc, etc, etc. Many of these choices will be based on what you expect to occur next quarter, next year, etc. People in these situations can typically afford to pay an accountant several hundred or thousand dollars a year to help them make the optimal decisions.