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Comment by turc1656 | Hacker News Reader

Nah, you're missing the forest when looking at the trees. Go bigger. Why the hell is the tax code so damn complicated that it requires certified experts and special software to perform personal tax filings? I can see the case for a complex code for business taxes since there are many different industries that have different rules. But personal returns should never, ever have such complicated rules. And that doesn't mean I agree with business taxes being complicated, merely that the argument is much more reasonable.

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> Why the hell is the tax code so damn complicated that it requires certified experts and special software to perform personal tax filings?

My response is:

>Nah, you're missing the forest when looking at the trees. Go bigger.

Why are we even having to file our own taxes? The IRS already checks everything. They have all the information that you enter into these systems (in fact, turbo tax has frequently had my W2 before my employer gives it to me, as well as many other documents).

So having us, or some middleman, doing it is double work. Let the IRS do it (because they determine if there is fraud or not), they send you a copy and you send it back either as is or with modifications.

If taxes are done this way who cares how complicated it is? (I'll hedge that in that it is harder to check the IRS's work, but I think less people care about this)

There's something to be said for making sure the government is doing it accurately. I bet there's a lot of people for whom the IRS is wrong about. Also, if you have other income with no W2 it needs to be reported.

> There's something to be said for making sure the government is doing it accurately.

>> Let the IRS do it, they send you a copy and you send it back either as is or with modifications.

That's why you check it.

And to respond to a possible next question, do we trust TurboTax (or others) more?

> Also, if you have other income with no W2 it needs to be reported.

All those other forms that are handed to you are ALSO already handed to the IRS. For example the 1099. The W2 was an easily verifiable example of how they already have this information before you receive it. The gov already has copies of all those forms. So really as tax payers we're paying for the IRS to do our taxes and we're paying for companies like TurboTax to do it as well (assuming you don't do it yourself)

It's a bit more complicated than that. For example, rental income and capital gains on sales of property or owned items don't typically have reported forms associated with them. But for probably 90% of tax filers, the IRS should already have everything it needs and know the exact amount owed.

That's fair, but I think if it works in 90% of cases that's a huge win. And it seems like it'd be pretty easy to close that gap (with multiple solution methods).

100% agree. A simple "here's what we think you owe" postcard for 90% of people and a "we think you might have unreported income based on your bank transactions - please fill out a full 1040" for the other 10% would be a massive improvement over today's system.

Right now the system is that everyone gets a "we think you might have unreported income" and I don't see any problem with that.

What I don't understand is why we can't have the IRS running their own tax prep website. The government seems to be capable of running other websites just fine.

Stolen from Twitter [1]:

"Government: You owe us money. It’s called taxes.

Me: How much do I owe?

Gov’t: You have to figure that out.

Me: I just pay what I want?

Gov’t: Oh, no we know exactly how much you owe. But you have to guess that number too.

Me: What if I get it wrong?

Gov’t: You go to prison"

[1] https://twitter.com/jordan_stratton/status/11181414550616719...

I'm very happy this sentiment is becoming more common. It is just insane when you think about it.

You realize that only a portion of people get audited right?

Sure, your government could calculate everyone's taxes but I'm guessing those taxes would need to go up...

The IRS does in fact compare the data you send them to the data they have. Presumably the IRS, famous for it's computer system, isn't hand-checking every return.

Try filing your taxes using different numbers than on your W2/1099 and see what happens.

I guarantee you'll get a discrepancy letter.

The government does exactly that for the majority of tax residents in most countries in the world. US, with its Byzantine tax return system, is an outlier.

Sounds a lot like the "self evaluation" nonsense when it comes to performance review.

"I give myself a 5 and deserve a 5% raise" Oh well you only get a 2% raise.

Just lazy management that event "delegates" the only part of the job they are actually supposed to do.

I don't think the IRS sends people to prison for filing incorrectly. There's a difference between misreading the instructions and “willfully [making and subscribing] any return, statement, or other document, which contains or is verified by a written declaration that is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter.”

I helped my sister do her taxes this year, since it was her first year. We just used the H&R block software since that is what I used to mine.

They rejected her return because I kicked two of the numbers on the EIN of one of her employers. The rejection was quick too, as we got the email about 20 minutes after submitting the return.

I always knew that the IRS checked your return, but I always figured it was something that eventually happened. I didn't think they checked everything as you submitted it. I don't know why I though that. Guess I pictured the IRS computer as an old IBM S/360 with core memory that did everything in batches.

> I don't know why I though that. Guess I pictured the IRS computer as an old IBM S/360 with core memory that did everything in batches.

I think that idea is common. But why wouldn't they automate it with modern(ish) hardware? It saves them money to do that. Just like it saves H&R block by creating a program. In fact I'm more surprised that H&R didn't flag it before you hit submit.

Why are we even having to file our own taxes?

Supposedly a political gambit from the right. The idea is if paying your taxes is painless, you will cease to notice them. But the more painful paying them becomes, the more attention you will pay to what you are paying, and then the more you will object & vote to lower your taxes.

I've heard this too, but also that Regan supported this style of taxing. Which seems like part of the Republican ideal: cut out the middle man.

A Planet Money episode went into this. It's basically:

- We (R) don't want taxes

- We will make filing taxes the most cumbersome thing possible

- People will hate taxes

You don't need an expert to file a personal return.

But, the core problem is that in the US we use the tax system as a method for distributing subsidies for various things. Buy a solar panel? Instead of writing you a check, we give you a tax credit. Have a kid? Tax credit.

You could certainly simplify the act of filing taxes, but HR Block and Intuit lobby heavily against that. As far as moving away from using it as a distribution mechanism for subsidies, that complexity could be removed from the tax code but it will get pushed somewhere else instead. I think most people would prefer getting their child tax credit through taxes than having to apply at a welfare office and get a check.

What complicated rules? The basic 1040 is perfectly straightforward, even if you have a few sources of income or special deductions/credits.

If you do it quick and dirty, then yeah. But I am pretty sure most people would find even the 1040 a bit intimidating. The problem is that the tax code is more than 75,000 pages long. No one knows all of it and there are parts that are up to interpretation and self-categorization. If you want to basically ignore all that (legally) you can go the quick and dirty way and just take the standard deductions and exemptions and not itemize or claim anything and the government will have absolutely no issue with that. But to do it "properly" for most people - where properly means getting the most back that you can legally get back - then it's quite cumbersome and involves a lot of reading.

For example, my tax situation is not terribly complicated. But looking at what I paid my accountant to do, there's precisely 0% chance that I would be able to do what he did and get back as much as we did without spending weeks of my life reading tons of IRS regulations and rules. This is exactly why I pay him to do it for us, and exactly the core of my point - doing it right and getting back the most is not easy at all without assistance whether that be software or an actual licensed professional.

Just curious: how much do you pay your accountant? A single federal/state personal return done by a pro goes for anywhere between $400 and $800 around here, compared to $80 or so with TurboTax. I can’t imagine the difference between an accountant and me doing my taxes to be more than that, especially with a “not terribly complicated” return. Are your taxes really hundreds of dollars less just from hiring a sorcerer to do them?

I used to use TurboTax and painstakingly enter everything imaginable and read everything to make sure I wasn't missing anything and would consistently get back around $4,500 to $5,000 in total between Federal and state. Using him, we got back $6,500 total. Also, with the Trump tax changes taking effect, a bunch of coworkers of mine said they got screwed and got back like half of what they used to get back. A few said they were about on par. We got back more than usual.

He actually just does them for free because my wife has an LLC in her name and we pay him to do the LLC taxes and other stuff. And he said the hardest part is doing the LLC work and we were already paying him for that - so since our returns were actually quite simple he'd just file them for us because the hard part was done (and paid for). Not sure what it normally goes for. I think you're correct that it's around $400, though. And in that case, we definitely net out much more than the $400 we would be paying if we were paying. I'm sure every situation is different, but for us it's a clear win. And if you're wondering - no we aren't funneling losses through the LLC or anything like that. The LLC is profitable and only increases our income which is why we figured we would get screwed like my coworkers with the tax changes, but somehow did not.

Comparing the refund amount isn't very informative. Effective tax rate or dollars paid is a better comparison, especially in years like this one where the witholding tables got kinda weird so lots of people over/underpaid their taxes over the course of the year.

Good point. I took a look. He appears to be 0.5% more effective than me doing it myself with software. Doesn't sound like much, but it's far more than the $400 or so we would normally be paying for this.

EDIT - 0.5% meaning my effective tax rate is 0.5% lower.

Wow, does he provide any explanation of the delta between the two returns? Side by side comparison of what’s being filed?

I ask because I once did go to a CPA, after first filling out the forms myself. The tax bill he computed was identical to what I came up with, so I concluded he provided no value over doing it myself!

He just files for us so no side by side because I'm not going to do it in tandem to compare because that's what his job is. But I think for us the reason is that he plans in advance what we should be doing during the year to minimize the tax impact on the business side of things - i.e. do this now, do that later, and do that other thing next year, take this disbursement now, pay this estimated tax, write off that loss now, etc. So I think it's more that the critical stuff is done throughout the year rather than just doing a post-mortem - proactive rather than reactive.

> But to do it "properly" for most people - where properly means getting the most back that you can legally get back - then it's quite cumbersome and involves a lot of reading.

I would bet that the majority of Americans get more back through the standard deduction than with itemized deductions.

Agree, but there's more than just itemization that can be done.

Agree, but there's more than just itemization that can be done.

Cool. Like what?

Capital losses, correcting of cost basis for employee stock purchase program shares, handling multi-state income...

For the overwhelming majority of people, the standard deduction will be way more than an itemized version. It sounds like your accountant went through and found some deductions/exemptions in the overly complicated tax code that wouldn't exist in a simplified tax code, so you would have paid more. That is, unless your version of "simplified" means "only those parts that benefit you".

The notion of deductions (Schedule A) is complicated enough. I did not know, for example, that state income tax was deductible (pre-tax reforms). If I hadn't just happened to use a tax software (I almost never use one), I would have been overpaying in taxes.

Now of course, once I learned this, Schedule A was a breeze. But it's not something I expect a common person to know, and it's unfair that some of them may be overpaying in taxes due to a (nontrivial) piece of knowledge.

And then I'm always wondering if there are any other deductions I should be aware of.

Unlike any of my w2s, my -DIV forms look completely different with different boxes and different names for these boxes. Some have a dozen boxes, some have one or two. Some dont even send me a proper form but an “equivalent” or something to that effect. Every time I file taxes its a gamble that I parsed the form I got from the brokerage correctly.

The complexity grew over time. Democrats want to add more taxes or tweak the distribution in favor of progressive policies, not remove old taxes. Republicans want people to hate taxes so they can slash them (mostly for the rich, i.e. regressive taxes).

Thus, no one is simplifying, for their own reasons.

But how can I incentivise people to do things like buy hybrid or electric cars, solar, etc without tax breaks, and how do I do tax breaks without complicated calculations based on laws pseudocode) and a bunch of other numbers?

I'm in the camp that there should be no incentives for taxes for anything. Similarly there should be no difference in filing married vs separately or with children.

To me it just feels wrong to incentivise living a certain lifestyle by getting a discount at just existing. It is great when it incentivises the things you want, such as hybrid cars or something, but what would happen if someone wanted to give you a discount for purchasing gas cars when they become less common because of relations to the oil and gas industry?

Or maybe tax incentives for purchasing private telecom service if/when municipal networks ever become commonplace?

If you they can lower tax liability for a certain amount why not lower it to the actual level needed across the board instead of keeping some cushion to give away coupons?

It depends on whether you subscribe to the progressive ideology that people should be encouraged to do things that we see as good for them. For the record, I do. But if we decide that we want a society where more people make the uninformed decision to buy a gas-powered car or a diesel generator because it's understood to be a social good then that's fine. That's precisely what that tool is meant to be used for.

Whether or not we can imagine a world where buying a gasoline-powered car or private telecom is considered a social good is less of an issue than whether we want to be able to incentivize those things should they become necessary.

The point is they aren't all based on societal good. The ones we use as individuals and like might be, but how many corporate tax incentives exist that are bad for everyday people?

It shouldn't be the IRS's business to reward people. If there is a reward for doing X then there should be a fund specifically for giving money to people in those scenarios completely independent of taxes.

Its much more transparent to say "we have a fund for X, mail us the required proof and we will send you a check", then it is to add layers and layers to the tax code. That also means everyday people are aware of what our representatives are arguing about and the dollar amounts being held responsible for the programs.

Then we get simple taxes without all of the itemizing nonsense.

I'm in the camp that there should be no incentives for taxes for anything.

Would you argue that potato chips shouldn't be taxed, or that produce should be?

I wasn't talking about sales tax, only yearly tax filings. Anything that is on an itemized tax return should be moved elsewhere into programs specifically for giving money for that instead of being given a coupon off of what you owe.

If there is some reason you report produce on your tax documents then no, it should not be there.

Gotta pass out special privileges. With complexity comes opportunity.

One of the most complexity inducing areas of the tax code, The Alternative Minimum Tax, has a lot more to do with taxing certain people extra than handing out any special privileges.

That and form 8960 (Net Investment Income Tax Individuals, Estates, and Trusts) are both direct contradictions to you assertion.

The fact that we still tax capital gains way lower than personal income should already tell you volumes about who has special privileges in the tax code.

There are a lot of very good reasons to tax capital gains at lower rates than ordinary income. Among them:

  - The problem of notational vs real gains
  - The fact that capital gains are already taxed once at the corporate level
  - The fact that taxing capital gains is a tax on savings and we want to encourage savings and investment
  - All of the theory on how differentiated taxes on present vs future consumption is a flawed idea
    (see https://en.wikipedia.org/wiki/Optimal_capital_income_taxation)

Note that it's not just in the US that capital gains are taxed at a lower rate but in virtually all other modern economies. It's not just some trick.

These are all very good reasons, but in practice it mainly means that the richer you are, the less you pay in taxes as proportion of your overall income, and there's a point past which taxation is essentially regressive as a result. So any such argument has to demonstrate that the obvious disparity that already exists in that arrangement is less of a problem than any of the hypothetical problems from taxing capital gains more.

Especially since there are countries that do tax at least some capital gains at the same rate, and they don't seem to be doing appreciably worse than other countries in a similar economic bucket that do not. Indeed, it seems to be more popular among economically liberal countries with flat income taxes.

there's a point past which taxation is essentially regressive as a result

Perhaps, but the US is not past that point. Every level of income pays a higher rate of taxes than the level below it according to IRS reports.

Separately, none of the issues I listed are hypothetical.

> Every level of income pays a higher rate of taxes than the level below it according to IRS reports

Does their definition of "income" include capital gains for the purpose of those reports? I don't see how this could possibly be true if it does, given that capital gains constitute the largest part of overall income past a certain point on the scale.

Does their definition of "income" include capital gains for the purpose of those reports?

Yes

https://taxfoundation.org/summary-latest-federal-income-tax-...

It doesn't show up in their data, because they cut off at 0.1% - the hump is slightly higher than that. This shows where it was as of 2014.

https://www.taxpolicycenter.org/taxvox/how-capital-gains-aff...

I'm not sure where it is today, exactly. But it's easy to see that it's always going to be there, simply by virtue of increasing proportion of capital gains at higher income levels.

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