I’m working on our taxes. Ugh.
I keep having to download various tax forms, and look up (or make up) obscure information. But… all these forms are already submitted to the IRS. Why do I have to hunt them down? Why doesn’t the IRS just send me a link and say: here’s your data - do you agree?
Or, better yet, why don’t they just bill me?
The whole system is just absurd. Some of the data is essentially impossible to find (the basis for a stock that I inherited that has split 20 times). For some of it, I just make up a number and fill in the blank. I figure that the worst it could be is wrong, and in 5 years I’ll get billed for correction for $200. Big deal. But, once again - if the IRS knows enough to know what the data is, they should just tell me.
Because you might very well have deductions , and the IRS generally doesnt track them (some taxes and Mort interest are reported of course… but charitable donations are not, nor medical , nor casualty losses) Also, many, many people have income that would go unreported- gambling wins, gains on selling gold, etc, and if the IRS said “here is your income and withholding, please sign if okay” then you’d have a very good excuse for “forgetting” to report that income.
Your stock advisor should be able to get you that basis. That is what he/she is paid for.
The tax preparation industry lobbies hard to keep the code a nightmare, and Congress is more than happy to take their bribes. Do we need to look much further than that?
I flagged the post for title correction, if that’s okay with the OP.
Oops.
Auto-correct + ebay reading glasses = typos.
The main reason is because you may have under-the-table or freelance income that the government may not know about. If the IRS filed your taxes for you based off of only the income they know of about you, such as your W-2, then a lot of such income would go unreported.
Granted, plenty of Americans would still lie and conceal such freelance income anyway (and do), but at least with you self-reporting, there’s a higher chance that honest taxpayers would send $$$ to Uncle Sam.
The government wants to rake in as much $$$ from honest self-reporters as it can.
The OP is right – this could be done. We know so because tax filing already works this way in some countries in Europe and elsewhere. The government tells you what it already knows about your income, and you self-report the things it doesn’t know. (And you can correct the government’s information if it is wrong.) Not perfect but logical and efficient and certainly a big improvement over the US system.
And yes, the US tax code is complicated – I suspect more complicated than that of other countries. But that really doesn’t preclude streamlining the filing process for US taxpayers to make it better than it is now.
What’s lacking is the political will. And that seems to be lacking because (as @Briny_Deep notes) the lobbyists are working hard to obstruct change, and also because Republican lawmakers think they can keep their taxes low by keeping the IRS dysfunctional.
This. It should be a trivial matter, when filing one’s taxes, to download all of the income information contained in one’s W-2 and 1099 forms, which make up the majority of the info on the majority of tax returns. Throw in health insurance information, and most of the returns are complete.
You would still need to report self-income. You would also need to report itemized deductions like charitable contributions, medical expenses, other taxes paid, etc.
But in my experience as a volunteer tax preparer, most of the information is already known by the IRS.
The deadline for employers to report W2 and 1099 data to the IRS is 31 January, and I imagine a significant number of employers request and get extensions. Add in time to collate the data and get it back out to the recipients, and I wouldn’t be the least surprised if it weren’t early- to mid-March before anyone using information from either of these forms could file. Which doesn’t mean that other countries don’t use this approach successfully, or that it couldn’t be used in the US, but the sheer volume of data (and footdragging on the part of tax reporters, plus the lobbying mentioned above) make it less likely to be effective here.
Given the fact that almost every employer uses an electronic accounting/payroll system these days, I imagine that very few employers have a need to get an extension. And the only extension they can request is a 30-day extension. If a W-2 is in the hands of an employee, it most certainly is in the hands of the IRS.
If I, as a tax preparer, mistakenly enter an EIN (Employer Identification Number) on a W-2, and then attempt to e-file that return, it will be rejected. (I know this based on experience!)
I stand by my earlier point–that the IRS has the information, and it should be available to download while preparing a tax return.
I seem to recall various tax software I’ve used offering to download W2 information - I assume it’s through ADP or similar services and there seems to be no reason the IRS couldn’t allow me or those programs to download W2 and 1099 info directly from the IRS. Except of course that H&R Block etc are fighting anything that might ever lead to them being cut out of the process.
I have a relatively simple return , don’t itemize deductions and there are still things the IRS doesn’t know on it - they don’t know how many dependents I have, they don’t know if I’m eligible to exclude my health insurance premiums as a retired public safety officer. But it would absolutely be easier if those two items were all I had to worry about . Unlike now, when I am retyping all the info from W2s and 1099s and have to worry that maybe a 1099 that we weren’t expecting got lost in the mail (again)
Exactly right. We double-check every bit of info we type into our clients returns from their W2s and 1099s, and we also request that they bring last year’s return, so we can verify that they have the information that we entered last year, like from an IRA draw or an investment account. You’d be surprised at the number of clients who don’t know all the information they should have.
And possibly also a budget? Instead of just an internal database that stores W-2s, 1099s and other documents submitted by entities that have had financial transactions with taxpayers, the IRS would need to develop and maintain a computer system that uses that data to prepopulate a tax return for each of the 260 million taxpayers out there, and that has the bandwidth for all of those taxpayers to securely log on and download that info within a roughly two-month period each year.
It would also meant the IRS is “tipping their hand”, letting taxpayers know exactly what it does and does not know about them. If a taxpayer is made aware that the IRS does not know about their income from some particular activity, they might be tempted to not report it at all.
And above all, when you tell people that a budget increase for the IRS (for a program like this) won’t actually increase how much revenue they collect, they tend to take a dim view of it.
I used to get printouts of my US and Swiss tax returns. The stack of paper for US was approximately 4x the Swiss taxes.
Also the accountant for the US costs about 3x the one for the Swiss taxes.
Fortunately the Swiss taxes are due at the end of March*, so they can get done before the US taxes are due mid-June (automatic extension for non-US residents).
If they’re going to simplify the US tax return, they could also change the rules to a resident-based tax system. 
Swiss employers and banks have to provide information until January 31st.
Why? If the IRS has the database, and it’s accessible to tax-preparation software, the software would still be utilized to prepare the returns. Having the database would eliminate the possibility of human error during data entry, and also eliminate the possibility of forgetting to enter a W2 or 1099.
The IRS is piloting Direct File in 12 states (primarily the biggest ones + no-tax states). I didn’t bother because FreeTaxUSA already has my info and is already free, I strangely somewhat like doing my taxes. All of the software now can pull info direct from the PDF of your W-2 though I prefer to verify manually.
The lack of info on a stock split is the fault of your broker, the IRS does not collect that info really. Lots of parts could be better, but it’s not hard for most people, and the really hard ones would need an accountant regardless.
Nope. Sure, Tax prep companies dont like free filing. Why should they? But the tax code is messed up due to politics and congress, creating and closing loopholes.
Exactly.
If you manage to get through California’s incredibly difficult sign in, you can do just that.
But here is the point- do you want all that info available to anyone who could pretend to be you?
Depends on what the question is - the question in the OP is
That involves more than making the database accessible to tax prep software - that involves mostly eliminating the software. How many people need software or tax preparers if the IRS gives them numbers and they either agree or dispute? Not the people with very simple returns.
People in some states can use the IRS Direct File tool this year - no software required. That’s progress that I didn’t really expect to see.
To be fair, if you make more than a certain amount in gambling winnings, it is reported automatically to the IRS (and you get a W-2G form), and if you don’t quite make that amount, I don’t think the IRS really wants to be bothered about it. There are quite a few slot and video poker machines where a payout that would normally be in the $1200-1250 range is $1199. No bonus points for guessing what the minimum amount of a slot/VP payout has to be in order to generate a W-2G, and note that pretty much every machine in the USA literally locks up when you do win that much, usually with a note displayed that says, “Handpay Required.” In fact, not only is there currently a bill in Congress (HR 3125) to raise this minimum reportable value to $5000, but there are reports that the IRS supports it.
The $1200 is only for slots - for poker tournaments it’s reportable if the winnings less the buy- in is over $5000 and for other card games , it’s required if the winnings minus the wager is both over $300 and 300 times the wager. Pretty sure the IRS cares if I win $8000 on a $30 bet even if there is no W2