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The best way to simplify tax preparation is to simplify the tax code. The percentage of people who save money by itemizing deductions is extremely small, as is

The best way to simplify tax preparation is to simplify the tax code. The percentage of people who save money by itemizing deductions is extremely small, as is the percentage who claim (or are eligible for) any of the more generous deductions. Doing taxes in the US feels like going through a garbage can of bad social program ideas, bureaucratic waste, etc. Then to make matters worse we get expensive wars...

bonesmoses 12y ago
The annoying part about all of this is that our taxes are already done. Due to various required forms for businesses, the IRS pretty much knows exactly what you make and how you did it. Banks file forms. Charities file forms. Employers file forms. They know how many kids you have, they know how old they are, they know if you own or rent, and how much your mortgage is and the interest being paid. They have info on your outstanding student loans. Except for the edgiest of edge cases, there really should be no surprises. Even a moderately powerful desktop should be able to precalculate the taxes for everyone in the country in less than a day. Why is filing taxes even a thing anymore? Hell, at this point, I wouldn't be surprised if Facebook could do our taxes for us due to all of the info they have. Our tax system is stuck perpetually in 1960, and it's just sad to watch.
- vonmoltke 12y ago
  As I said in the other posting of this, it is already done at some point. You get most of your tax forms before the IRS does, and you submit your tax return before the IRS processes most of them. They can't verify the information on your 1098s, 1099s, and W2s until the businesses that generated those forms submit their taxes and the IRS processes them.
  - bonesmoses 12y ago
    Yeah, I didn't see that there was a previous post; sneaky. In any case, that just accentuates my point, really. Were this more automated, the businesses wouldn't need to file either. If forms were handled more like an API, i.e. filed when expenses/income happens, it would all be live info. The government bitches about the digital age stealing their income, but they're not even trying to adapt. Nobody anywhere should have to "file" anything. The very act of buying and selling means it's already on file somewhere, and that means a live view is possible. Unless you're using computers from 1960...
  - gerbal 12y ago
    Many if not most businesses file taxes and tax forms on a monthly or quarterly basis. Between 75% and 100% of the relevant data is already in the IRS's hands. Businesses also generally don't wait until the deadline to file.
    - vonmoltke 12y ago
      Only businesses that withhold taxes from employees, and then only on the employees. Principals who are not classified as employees, those who qualify as "family employees", and 1099 contractors do not report anything until the end of the year.
sbov 12y ago
Anyone who bought a home in California in the last 10 years probably saves money by itemizing. Or any other high cost state with decently high income tax. It isn't huge but I wouldn't call it extremely small... Any tech worker probably saves money by itemizing in California too. State taxes and salaries are high enough for that.
- grandalf 12y ago
  When I lived there I saved a tiny percentage by itemizing about half of the years, but then got hit by the AMT so it was all a massive waste of time. I could see that homeowners in CA would benefit by itemizing, however a simplified system could make something like mortgage interest much easier to factor in.
  - maxerickson 12y ago
    The stated purpose of making mortgage interest deductible is to make home ownership more affordable. We should take a careful look at whether it accomplishes that goal. My not well studied understanding is that people price homes based mostly on the monthly payment they will make, so the mortgage interest deduction tends to make them willing to pay more for a given home. Rising prices do not make housing more affordable.
    - sbov 12y ago
      People seem buy houses based upon how much money a lender will give them. Hence the whole housing bubble problem. I'm not sure if lenders factor in deductions or not.
      - maxerickson 12y ago
        That has a very strong relationship with the monthly payment that they can manage.
        sbov 12y ago
JoshTriplett 12y ago
> The best way to simplify tax preparation is to simplify the tax code. That much I absolutely agree with. A flat tax would require a single tax form the size of a business card. > The percentage of people who save money by itemizing deductions is extremely small, as is the percentage who claim (or are eligible for) any of the more generous deductions. Not true at all. Anyone who owns a home itemizes to deduct interest. Anyone who pays enough state taxes itemizes because you can deduct state tax payments on your federal taxes. I do agree that taxes should be drastically simplified, but in the process they would also need to be lowered so that the average person pays the same or less in taxes as they would have with today's high taxes and deductions.
- Cshelton 12y ago
  Right, many people do put down their home interest, real estate taxes, medical expenses, sales tax on a new car, etc...but even then, most peoples' itemized expenses fall below the standard deduction, especially for married filling joint. So yes, a large percentage of people are just getting the standard deduction.
  - smackfu 12y ago
    Generally around 30-35% of taxpayers itemize. So a minority, but not an insignificant one.
- taeric 12y ago
  Not necessarily anyone that owns a home deducts. Consider that the median home price is $188,900. If you have a loan of 4% (current rates), that puts the amount of tax you would pay at about 7k for the first year. If you are single, this is just over the standard deduction amount. If married, it is below. So, yes, plenty of people in the "we can afford expensive houses" category are in position to deduct. Majority of the nation? Not so much.
- jbooth 12y ago
  A progressive tax would require the same size tax form, even a progressive tax that went negative at the lower incomes. Flat isn't the simplification -- elimination of the billion deductions is the simplification.
Cshelton 12y ago
Let's be honest, the tax code is used as the means to influence social/economic decisions, without having to impose any laws. Even take gay marriage as an example...many states do not allow it still, however; because the IRS has said you can file married filing joint as a gay couple...as long as you were married in a state that allows so, even if you re a resident of a state in which it's illegal, you're good to go. This by itself pretty much made gay marriage legal nation wide. This is just an example, not that gay marriage should or shouldn't have been made legal, but should it be done in this way... using the tax code instead of ratifying the actual laws. It's a long, dark road we have started down with this method, and something needs to be done about it.
- eli_gottlieb 12y ago
  Is it really that dark a road to have the IRS pass a simple rule that simplifies tax filing and brings it closer to people's lived experience of keeping their finances as a family unit? They wanted to save themselves some paperwork by allowing people who cohabit as a family unit to file taxes as a family unit. How is that a long, dark road to having the IRS tell everyone how to live?
thedufer 12y ago
> The percentage of people who save money by itemizing deductions is extremely small I don't know where you're getting that. The only number I can find on it is an unsourced assertion that more than 60% take the standard deduction [1], which still implies that on the order of 1/3 of taxpayers itemize. Hardly "extremely small". [1] http://abcnews.go.com/Business/tax-tip-choose-standard-deduction-itemizing/story?id=28873573 http://abcnews.go.com/Business/tax-tip-choose-standard-deduc...

bonesmoses 12y ago

The annoying part about all of this is that our taxes are already done. Due to various required forms for businesses, the IRS pretty much knows exactly what you make and how you did it. Banks file forms. Charities file forms. Employers file forms. They know how many kids you have, they know how old they are, they know if you own or rent, and how much your mortgage is and the interest being paid. They have info on your outstanding student loans. Except for the edgiest of edge cases, there really should be no surprises. Even a moderately powerful desktop should be able to precalculate the taxes for everyone in the country in less than a day. Why is filing taxes even a thing anymore? Hell, at this point, I wouldn't be surprised if Facebook could do our taxes for us due to all of the info they have. Our tax system is stuck perpetually in 1960, and it's just sad to watch.

vonmoltke 12y ago
As I said in the other posting of this, it is already done at some point. You get most of your tax forms before the IRS does, and you submit your tax return before the IRS processes most of them. They can't verify the information on your 1098s, 1099s, and W2s until the businesses that generated those forms submit their taxes and the IRS processes them.
- bonesmoses 12y ago
  Yeah, I didn't see that there was a previous post; sneaky. In any case, that just accentuates my point, really. Were this more automated, the businesses wouldn't need to file either. If forms were handled more like an API, i.e. filed when expenses/income happens, it would all be live info. The government bitches about the digital age stealing their income, but they're not even trying to adapt. Nobody anywhere should have to "file" anything. The very act of buying and selling means it's already on file somewhere, and that means a live view is possible. Unless you're using computers from 1960...
- gerbal 12y ago
  Many if not most businesses file taxes and tax forms on a monthly or quarterly basis. Between 75% and 100% of the relevant data is already in the IRS's hands. Businesses also generally don't wait until the deadline to file.
  - vonmoltke 12y ago
    Only businesses that withhold taxes from employees, and then only on the employees. Principals who are not classified as employees, those who qualify as "family employees", and 1099 contractors do not report anything until the end of the year.

sbov 12y ago

Anyone who bought a home in California in the last 10 years probably saves money by itemizing. Or any other high cost state with decently high income tax. It isn't huge but I wouldn't call it extremely small... Any tech worker probably saves money by itemizing in California too. State taxes and salaries are high enough for that.

grandalf 12y ago
When I lived there I saved a tiny percentage by itemizing about half of the years, but then got hit by the AMT so it was all a massive waste of time. I could see that homeowners in CA would benefit by itemizing, however a simplified system could make something like mortgage interest much easier to factor in.
- maxerickson 12y ago
  The stated purpose of making mortgage interest deductible is to make home ownership more affordable. We should take a careful look at whether it accomplishes that goal. My not well studied understanding is that people price homes based mostly on the monthly payment they will make, so the mortgage interest deduction tends to make them willing to pay more for a given home. Rising prices do not make housing more affordable.
  - sbov 12y ago
    People seem buy houses based upon how much money a lender will give them. Hence the whole housing bubble problem. I'm not sure if lenders factor in deductions or not.
    - maxerickson 12y ago
      That has a very strong relationship with the monthly payment that they can manage.
      - sbov 12y ago

JoshTriplett 12y ago

> The best way to simplify tax preparation is to simplify the tax code. That much I absolutely agree with. A flat tax would require a single tax form the size of a business card. > The percentage of people who save money by itemizing deductions is extremely small, as is the percentage who claim (or are eligible for) any of the more generous deductions. Not true at all. Anyone who owns a home itemizes to deduct interest. Anyone who pays enough state taxes itemizes because you can deduct state tax payments on your federal taxes. I do agree that taxes should be drastically simplified, but in the process they would also need to be lowered so that the average person pays the same or less in taxes as they would have with today's high taxes and deductions.

Cshelton 12y ago
Right, many people do put down their home interest, real estate taxes, medical expenses, sales tax on a new car, etc...but even then, most peoples' itemized expenses fall below the standard deduction, especially for married filling joint. So yes, a large percentage of people are just getting the standard deduction.
- smackfu 12y ago
  Generally around 30-35% of taxpayers itemize. So a minority, but not an insignificant one.
taeric 12y ago
Not necessarily anyone that owns a home deducts. Consider that the median home price is $188,900. If you have a loan of 4% (current rates), that puts the amount of tax you would pay at about 7k for the first year. If you are single, this is just over the standard deduction amount. If married, it is below. So, yes, plenty of people in the "we can afford expensive houses" category are in position to deduct. Majority of the nation? Not so much.
jbooth 12y ago
A progressive tax would require the same size tax form, even a progressive tax that went negative at the lower incomes. Flat isn't the simplification -- elimination of the billion deductions is the simplification.

Cshelton 12y ago

Let's be honest, the tax code is used as the means to influence social/economic decisions, without having to impose any laws. Even take gay marriage as an example...many states do not allow it still, however; because the IRS has said you can file married filing joint as a gay couple...as long as you were married in a state that allows so, even if you re a resident of a state in which it's illegal, you're good to go. This by itself pretty much made gay marriage legal nation wide. This is just an example, not that gay marriage should or shouldn't have been made legal, but should it be done in this way... using the tax code instead of ratifying the actual laws. It's a long, dark road we have started down with this method, and something needs to be done about it.

eli_gottlieb 12y ago
Is it really that dark a road to have the IRS pass a simple rule that simplifies tax filing and brings it closer to people's lived experience of keeping their finances as a family unit? They wanted to save themselves some paperwork by allowing people who cohabit as a family unit to file taxes as a family unit. How is that a long, dark road to having the IRS tell everyone how to live?

thedufer 12y ago

> The percentage of people who save money by itemizing deductions is extremely small I don't know where you're getting that. The only number I can find on it is an unsourced assertion that more than 60% take the standard deduction [1], which still implies that on the order of 1/3 of taxpayers itemize. Hardly "extremely small". [1] http://abcnews.go.com/Business/tax-tip-choose-standard-deduction-itemizing/story?id=28873573 http://abcnews.go.com/Business/tax-tip-choose-standard-deduc...