the deep cynicism here is how people think Turbo tax is doing a pubic service by making taxes easier and cheaper, that's how effective their marketing is. Convince the public there is a problem that only said company can solve.
Obviously taxes would need to be reduced if all deductions were removed. I for one would love to see a zero deduction tax law, and simple validation of earnings.
You will always need accounting for businesses (IMO).
Suppose you ran a lemonade stand. You bought some equipment, some raw materials, you used some utilities, you used some space, you bought a banner and some flyers to advertise your stand, you hired a lawyer to help set it up, you bought a business license, you bought cups and napkins, you took in some receipts. Let's presume you turned a profit.
On what figure should you pay taxes? The gross receipts (every dollar you took in)? Or just the profit (receipts minus expenses)?
And that's just a lemonade stand; imagine the complexity of a larger scale business...
In terms of businesses, I hold somewhat controversial belief that businesses should not be taxed. Their employees are taxed, and people recieving dividends are taxed. By not taxing businesses, we'd also balance out the unfairness in the system today, where large companies are able to offset all profits with deductions, and small companies which actually pay quite a bit. The point is to bring fairness to the tax system.
I do worry that it would raise other forms of exploitation of loopholes though. There would be less pressure to report payroll expenses (decreasing compliance and decreasing payroll taxes as anyone you pay off the books is cheaper out of pocket for you per dollar they receive) and I suspect we'd see a lot more people not taking large salaries at companies they control but rather funding their lifestyle needs with perks and loans from the company, the repayment of which would not be taxed.
Payroll taxes are 1/3 of federal receipts; any significant decrease in compliance there would perhaps be more damaging than losing the corporate tax income directly.
Your hypothetical "fair system" will have to have policies and regulations in place to deal with all of these situations.
As far as I can see, the only opportunity for real fundamental simplification is to completely drop all taxes on income, and substitute consumption-based taxes. And even that is not as simple as it sounds (how does it deal with barter, for example?).
With stocks, capital gains, dividends, write-offs, company you need to handle these manually and the government doesn't know your write-offs and all sources of income.
If nothing else, the IRS could say "here's the info we have, feel free to review and add anything we don't know about".
The IRS cannot correctly calculate what the typical small business owner owes, what the typical real estate investor owes, what the typical upper middle class family owes, because they don't have all the information available to them.
In 2012 (the last year for which I have a breakdown: https://www.irs.gov/pub/irs-soi/12rswinbulreturnfilings.pdf ), of the 239 million returns filed, about 143 million are individual returns. Of the 143 million individual returns, about 13% or 18.6 million use 1040EZ ( http://www.freeby50.com/2012/12/what-percent-of-people-file-... ).
The IRS probably has enough information to file 1040EZs for most people, but certainly not enough for 1040A, 1040, or most business returns.
So, of the 293 million returns filed, about 18.6 million or 6.3% of them could be auto-filed by the IRS. About 1 in 16 total returns and about 1 in 8 personal returns.
To me, 6.3% (or even 13%) is a far cry from "all the typical cases". They can mostly handle one particular case; that might be the case that you personally have; I have no objection to them offering that as a service. Just don't be confused and think that that that's all the typical cases.
I support most systems that would take the burden and aggravation off the American public. I also worry that it would make it even more opaque than it is today. (I don't believe we'd have the current rate of taxation nor spending if we hadn't instituted a payroll withholding scheme and Americans had to actually save and write a check to the government each year.)
Taxes get complicated REALLY quickly as you move beyond single W2 earnings.
Anybody know a good alternative? I'm thinking about trying TurboTax Self-Employed for $89.99.
You don't have to pay until you file, so you can poke around for free and see if it includes everything you believe you need.
The way tax returns are done is deliberately abusive to citizens. They'll chase you down if you owe them money, but not if they owe you. In that case you need to jump through flaming hoops every year to appease them. It's not a coincidence.
Playing devil's advocate, why not? They all claim to maximize your tax return, and TurboTax specifically claims no tax knowledge needed too.
Knowledge of your personal circumstances is required and TurboTax's interview process guides you through extracting that information.
Charitable donations (to take a straight "optimized return" angle). How much did you give? Did you receive anything of value in return?
Intuit (TurboTax) doesn't know that info. H&R Block doesn't. The IRS doesn't. CreditKarma doesn't. You do.
But at least TaxAct is a small company that's been around for about as long as TurboTax and I think their business model is far more ethical than Intuit, who are doing the absolute worst thing by basically legally bribing elected officials to keep tax preparation complicated enough that they are a going concern.