The real story is the absolute travesty of government corruption that TurboTax and HR Block have perpetrated by making it illegal for the government to make tax filing as easy as it should be. It's one of the things I would immediately correct if I was king for a day.
However, while 70% of taxpayers would be eligible for free filing, in practice only 3% do — no doubt because tax prep companies make it so difficult to find and use this option. These companies are offering products like this as a carrot to prevent the IRS from competing with them, and then deliberately making them as difficult to find and use as possible.
Source: https://www.propublica.org/article/congress-is-about-to-ban-...
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The problem with that is there's often caveats.
Ex: in grad school I did a summer internship, and put my profits into an IRA. Later on, I found out I could not use many free file software, because they considered handling the dividends my index funds had generated as a premium feature, even though I was below the income limit.
Eventually I found out the AARP had a free tax prep program that did not have that restriction (nor was it limited to over 65s), but it took a lot of effort to avoid paying 50+ bucks just to process a tiny, tiny bit of tax because it was in the "wrong" category.
IMHO it's not cool to nudge low income people to not save for retirement.
If anyone else has had this frustration, bookmark this page: https://secure.aarp.org/applications/VMISLocator/searchTaxAi...
> Forms 1099-DIV and Forms 1099-R, showing dividends and distributions from retirement and other plans paid to you during the year
Note that there is a difference between a tax product's freemium tier (where they can upsell) and their Free File product (where they cannot). A big part of the problem here is that these companies do their best to make you conflate the two — and then hide the second one, so they can upsell unsuspecting taxpayers who don't know the difference.
[1] https://www.irs.gov/e-file-providers/what-you-need-to-get-st...
See this twitter thread from ProPublica where you can't proceed in two scenarios without an upsell...because you aren't actually on the Free File page: https://twitter.com/propublica/status/1120404531433672705
Anyways, whether it was from the brokerage I opened or the IRA, I had a class of income that would have made me need to pay to file, even though my total income was below 65k.
Another thing was foreign taxes paid (because some funds in one of your indexes are international). But they don't let you just say "listen, I'd rather skip the credit for those two whole dollars in taxes and not pay 50 dollars to file"
It's still a shitty and stupid situation... but that doesn't mean it's relevant for most free filers.
You should be able to skip the foreign tax credit if you manually enter the 1099-DIV: simply enter foreign taxes paid field on the 1099-DIV as 0, and your tax software won't offer to credit it.
No, income from interest paid on deposit accounts is reported on form 1099-INT, not 1099-DIV.
1099-DIV is for dividend income. 1099-INT for interest income. They are are reported different places on your tax form.
Nowadays most people don't get 1099-INTs from their banks or credit unions because interest rates are so low most people are making no more than $1-$2 a year in interest because rates are so low and financial institutions aren't required to issue 1099-INTs for interest income below $10. I used to get them from my credit union back in high school when rates were higher.
https://budgeting.thenest.com/report-dividends-credit-union-...
I never bought into all the credit union jargon ("share," "share draft", etc.) so I forgot they pay "dividends" instead of "interest."
In short, I believe this is the way it works: because credit union members are owners of the credit union, the profit paid to members are considered dividends by dictionary definition, however, the IRS considers them interest by their rules. Just like VA disability, getting a check from the government every month is obviously income, but the IRS doesn't consider VA disability income by their rules.
For example, if you had $20,000 in a Chase savings account AND had a "Premier Relationship" with them then you'd get an interest rate of 0.04%, or a whopping $8 in interest for the year.
https://www.chase.com/personal/savings/interest-savings/inte...
Its worth noting that rates have gone up significantly in the last year and a half, at one point it got to the point where checking accounts and savings accounts had the same interest rates at many banks and many people stopped using savings accounts entirely at that point.
The high yield savings accounts tend to have a few strings attached but nothing I’d consider a barrier to someone with at least a job that offers direct deposit.
The biggest barrier to getting a 1090-INT is not the bank or the APR. It is having a low income and not enough money to save.
Me? I currently have fifteen (15) bank accounts. Chasing those sign up bonuses.
High-interest savings account are crappy as investments, and I'd you have to go to a different institution (or use a CD, or both) lack the frictionless (and instant) connection to primary checking that is generally the reason to use a savings account vs. a decent investment vehicle.
I've since optimized my investment strategy (small amount in checking, rest in investments)
The IRS doesn't require institutions to generate 1099s for <10 dollars in interest.
The limit for IRAs is lower than that for 401ks. It is very common to open a brokerage account if you had more than 5500 you wanted to put away.
(Ex: grad student who interns in the summer, contractor with boom and bust pay cycle, or any worker in a company that doesn't offer a 401k)
>You should be able to skip the foreign tax credit if you manually enter the 1099-DIV: simply enter foreign taxes paid field on the 1099-DIV as 0, and your tax software won't offer to credit it.
I'm not sure it's legal to lie about the contents of the 1099-DIV, even if the lie is to the government's benefit :)
They clearly mean they ALSO had a taxable brokerage account that generated dividends; saying they contributed to an IRA was an (unintentional) misdirect.
I still stand by my assessment it's not cool to nudge people not to save.
There are many people who'd like to save, but don't have 401ks. (Ex: students doing internships, contractors, or people working in the service industry)
The limit for a 401k is ~18k IIRC and ~5500 for an IRA IIRC. If you had say, 10k from a summer internship, you'd put the difference in a normal, taxable brokerage.
Having a brokerage account does not mean one is affluent.
IRA (traditional and Roth) contribution limit in 2019 is $6k.
Source:
https://www.irs.gov/newsroom/401k-contribution-limit-increas...
Another option is a "solo" 401k account but there's more paperwork involved.
Roth IRA/401k are post-tax investments, and thus not tax deductible. And the income they produce within the IRA/401k is not taxed upon withdrawal.
Ergo, traditional IRAs are more complicated because you have to account for the deduction in the current year, and you have to account for income tax (as well as FICA by the way) upon withdrawal, plus there are mandatory distribution rules based on your age. The Roth IRA are less complicated, no deduction claimed therefore no deduction to prove in the current year, and no taxes to compute on withdrawal, with no mandatory distributions.
The big exception is if you are lower income you might be eligible for the Saver’s Credit for the current tax year based on your Roth contributions.
When you start adding in all these other little side cases you’ve blown your argument. They literally take more effort (either on your part deciphering and completing, the CPA’s part deciphering and completing, or Turbotax’s part developing and validating). Yes you made practically nothing this year but it was in incredibly uncommon ways and that makes it more complex than a simple 1040EZ.
As another comment pointed out it could have been a Roth IRA, which has different rules. It could also have simply been some other oddity or quirk of the tax software at the time.
None of the specifics negate anything related to complexity vs cost.
In fact, you SHOULD have both since 401(k)s are hugely inflexible compared to IRAs so it makes sense to fund an IRA before a 401(k) unless you're getting a match on the 401(k) contributions. So if you want to save 10% for retirement and you get a 5% match on your 401(k) then it usually makes most sense to put 5% in the 401(k) to get the match and 5% in the IRA for control and flexibly.
If you then want to bump up your your retirement contribution to 15% then 5% should go in the 401(k) and 10% into the IRA, staying within the legal IRA contribution limits. Once your IRA is maxed out, then the remaining should go into the 401(k) (until your 401(k) is maxed out, of course).
401(k) can also be rolled over to IRAs when you leave your employer, so even someone who only contributes to a 401(k) will usually end up with an IRA.
This really depends on how good your 401(k) is and what kind of investments you want to make. If you just want the standard (and very good) low-cost three-fund portfolio, all 401(k) programs I’ve seen offer these kinds of index funds. If you really want more exotic investments, then an IRA might be better.
The advise to have both is sound though, but the best reason is you want to maximize your tax-advantaged savings. “Flexibility” is a benefit not important to everyone.
I disagree because 401(k)s can change on a whim though... My company decided to change literally all of our fund options overnight, and we couldn't keep what we already invested in the old funds, we just had to buy into the new funds. So even if your 401k is awesome today, it might not be awesome tomorrow. If your IRA provider decides to change their fund offerings, you can just move to a different one.
Luckily our new funds had perfectly fine choices, but that might not have been the case.
>If you just want the standard (and very good) low-cost three-fund portfolio, all 401(k) programs I’ve seen offer these kinds of index funds.
Honestly, both our original and current 401(k) options didn't/don't have a good international fund, the ones they had had very high expenses (over 1%)
There's also no low cost REIT index on my 401(k) (however, REIT isn't part of the 3-fund profolio)
I agree, though, that this is a digression from the broader argument, which is that the lack of an easy and unqualified free option (or automatic filing) by the IRS is a particularly egregious case of regulatory capture by the tax prep industry.
It's not cool to NOT nudge low income people to save.
The options out there for free e-filing are hardly any better than the paper option, though. They're typically just the paper forms translated very directly into an electronic fill-in form. You're still left to your own to make sense of all the byzantine rules and instructions, and to grind through it all yourself.
I know because, for the entirety of the time that I was eligible for free e-filing, I didn't bother. Using the PDF fill-in forms and then just printing them out and mailing them gave me very nearly the same UX, with the added benefit of not having to read a giant pile of legalese in order to figure out exactly how some third party is planning to make money with all the financial information I'm sharing with them.
Actually, 100% of taxpayers are eligible for free electronic filing. 70% are eligible for free filing software that calculates everything for you. The other 30% just get fillable forms.
See https://www.irs.gov/filing/free-file-do-your-federal-taxes-f...
There is no option like that for the US, free or paid.
You know this applies to pretty much every service in the US right? A company wants to make massive profits, so it just lobbies and buys the laws it wants.
Healthcare, private prisons, banking, "security" (TSA), education, transport, etc. etc. etc.
If you were king for a day, I hope you'd fix a lot more than just doing taxes.
Maybe it has something to with wanting to see my taxes being used properly, rather than going to a private company's profits. Maybe it's the abstraction; that'd I like to know that the workers I see doing the work for the government are government employees, and that I am, in some small way, helping them?
I mean, sure, with a private company that's still a thing - but maybe I also like seeing road crews with the city's emblem and such working on issues - not a private company doing it?
You know that here in the USA, there is virtually a single private company that handles emergency and construction signage in every state? When you see signs out that say "Road Construction Ahead" or the flashing signs on trailers, or even just some construction cones - all of those are owned and placed by virtually one company?
The name of the company is "United Rentals" - and while if you look on the back of those signs they may have different company names printed on them, when you call the number, it will always patch you through to the United Rentals phone bank/answering service. You might call "Bob's Signs" - but United Rentals will answer.
We can't even handle placing road signs out using public means and employees.
I'm sure somewhere in all of this, it was done as part of the whole process of breaking up (public) worker's unions.
Think of the professional experience, supply chain, and logistics for each industry where you could theoretically involve government to control or produce on it’s own.
The error of rolling everything possible under the sun into a government department, like sign laying, is you get a sign placer sitting around making a unionized $60k-$90k/year (for a $35k-$40k/year actual job), with a massive retirement pension that you will continue to pay for forever, a huge tax bill to cover the storage of all of these signs that the government has sitting around on a dirt lot somewhere, because they have zero incentive to rent them out and make money on them while not in use, and crumbling infastructure when the entire cost of the government does all attitude sucks the tax base and economy dry.
United Rentals, as a private company, has a vested interest in running their company efficiently, renting out a maximimum share of their inventory for the most profit, and their profit derived from this is not immoral behavior because it saves all of us money at the end of the day and employs a lot of people along the way. This is one more thing we won’t have to worry about the government screwing up as tax payers.
Now, let’s say a senator wrote a convoluted law that made it so only United Rentals can supply signs for government projects, cost be damned. That’s a more valid argument for moving it under government control if there is corruption and rent seeking behavior going on.
>United Rentals, as a private company, has a vested interest in running their company efficiently
Indeed! So instead of the above, you get a non-unionized Joe the Sign Placer getting $25K/year for actual job (efficiency!), and Bob the CEO/Shareholder netting $25M/year of the difference.
The government doesn't spend any less though, because:
1)Bob is the only game in town (at least as far as govt. contracts are concerned)
2)Bob pays the government for it to continue that way
>Now, let’s say a senator wrote a convoluted law that made it so only United Rentals can supply signs for government projects, cost be damned. That’s a more valid argument for moving it under government control if there is corruption and rent seeking behavior going on.
My only nitpick for this would be replacing "if" with "because".
But we have to keep in mind the only way to have citizens reap the benefits from this efficiency is by competition of the services offered. If for any reason competition cannot arise, outsourcing the task away from gov makes little difference while giving away a lot of the control/accountability we had.
I hear this often, but I haven't seen very many examples of it in practice. But it depends on what, exactly is being privatized.
I've been investigating why people think this for years. I've read a number of books, listened to lectures, went to proseminars in economics at UC schools, took some classes ...
Recently, I've become increasingly convinced it's actually just a giant hustle. It's an elaborate ploy that makes people money. Things like Demand Theory or the Efficient Market Hypothesis are modern astrology psuedo-sciences with real world evidence that's incidental or statistically insignificant at best.
This is especially true for the second-order implications like privatization.
There's no persuasive material evidence of the purported theory that privatization is more efficient. The most favorable evidence from the supporters (for instance, Megaprojects and Risk: An Anatomy of Ambition by Bent Flyvbjerg he has 3 more on the topic) say that private and public projects are about the same. They go over budget about the same and fail about the same.
Other more critical quantitative studies show dramatically better outcomes for publicly controlled systems - look at Oxfam studies for instance.
There's also a lot of evidence that the private systems however mint millionaires who make an absolute killing off the taxpayer.
Just like 500 years ago how religious people controlled the narrative and set up the rules of society and "laws of nature" to basically be giant money trees for them, there's a new class of people who have done the same thing.
Recently I've been studying where this economic school originated from (essentially Chicago Boys style) and what was driving it. I haven't found any serious scholarly work on it beyond things written by journalists.
The journalists track it to various organizations that formed after the new deal (each author has a different boogeyman) but the narrative is essentially the same: create think tanks, pack the colleges with favorable people, witch hunt the critics through red/left/whatever baiting, silence alternative views, create a media through movies, news, and television that support this view and so on.
Not because it's accurate, right, or correct - but because it makes them a lot of cash. The narrative actually changes.
Groups like the Heritage foundation or the American Enterprise Institute move their goalposts constantly over the years and defend it on supposedly principled economic grounds.
The problem is that you can often find, such as in healthcare, documents where they make multiple fundamentally contradictory arguments because the underlying market mechanics they defend are pliable devices of convenience to push the agenda of making private capital and that's literally it.
There's nothing deeper, nothing more fundamental. It's a giant hustle.
The one in NY owned a fleet of diesel buses, a central depot to put them in, a repair facility next to the depot, and paid administrators, mechanics and drivers. Every so often a wave of buses were replaced.
The one in MA pays a bus company that does all the same work. The bus company makes a profit. Interestingly, they aren't scaled -- this bus company serves this school district, period.
In theory, the MA school district could look for another vendor if the price got too high. In practice, every bus company is already at their capacity and could not expand to cover another district without a major capital infusion to fund another depot, repair shop, and more buses.
In any situation where one could reasonably argue that a private company could scale, one would have to also accept the argument that the government could scale at an advantage because they don't need to make a profit: depots and buses need to be fairly local, and while they can be consolidated to some extent, one might as well handle it as a multi-district service - a county or even state-wide.
Arguments based on a private company being more efficient because of competitive pressures don't work. There's no competitive pressure.
Arguments based on private companies being less corrupt don't work. Mismanagement happens everywhere.
When it comes to public services, privatization always means a handout to the owners.
One city in the entire country has essentially all its transport infrastructure owned by the government (some of it is operated by private companies under license). In every other city they're a mess of private companies.
Result: In that one city (it's London) the transport infrastructure works as an integrated whole and everywhere else it's just a bunch of assemble-it-yourself components.
Private bus companies actually operate the buses in every city, but in London those companies have to work for the government, their contract says all the buses must look alike (they're painted red, if you've visited or thought of visiting London you can probably visualise one) and work alike (taking contactless cards) and so on, they're all part of a single system. In London you don't care which private company operates the bus you got on and pays the driver, it says "35" on the front, it's a 35 bus, sorted. In my city they're just three (or maybe four?) different private companies, different livery, their timetables aren't co-ordinated, they have different overlapping number schemes, and different fare schemes - if I have my City card but I'm on a Blue bus that's no good, I'll have to pay by credit card.
Why? Because as in the US one of our political parties dogmatically believes that privatisation is better, and confronted with the fact that it doesn't work their answer is more privatisation. Nationally many people keep voting for them anyway. In London not so much.
It's still religion, in terms of the psychology behind it. It's just a religion devoted to money. Every middle-income person has been fooled into thinking that they're a CEO for a company of one, so instead of viewing taxation and public works as good for their fellow human, they've been trained merely to see the dollar signs draining from their coffers.
Individuals in the U.S. now truly believe that their lives are better keeping the additional 10% (or whatever) of their income than letting that be used for the public good. They physically can't allow themselves to see the cumulative potential of everybody giving an extra 10% to the public good, and just how much improvement their lives could see from it.
People have been trained to see the government as a black hole of money wasting. I mean, the myth that NASA spent millions on developing a space pen while the Russians used a pencil -- haha I can't believe how stupidly the feds spend money -- persists to this day, despite it just not being true. A private company developed the space pen, NASA bought a few thousand, and the Russians also ended up developing space pens. But no, the myth is now ingrained. I remember being told this as a fifth grader.
And yes, there is corruption in the public sphere that has strong negative effects on the efficient investment of public funds. But where does this corruption stem from? Sure, there's the occasional bad actor Congressman who's in it just for his own pockets. But the bulk of the systemic issues are heavily influenced by the corrupting influence of giant, private corporations.
Honestly, I don't think there's a point in asking whether corruption is more a government thing or a private thing.
Corruptions stems from the same things trade does - more than one people, each having desires and something someone else needs. It happens when a person, through temptation or duress, decides to enrich themselves at the expense of the organization they're working for. It's a fact of life, and I think the only relevant question is, for any given organization, how is it structured to combat this quite natural phenomenon.
The state and federal governments are large enough that pretty much everybody has either worked for them or knows people that have. So it's not really helpful to tell people they are brainwashed and don't know anything about reality. Sure, lots of people are stupid or misinformed, but that doesn't mean they have no experience with what they dislike.
I have worked for a Fortune 500 company, a non-profit subsidiary of a state university, a federal contractor, and a state government (but not in a civil service protected position). Have you experienced first hand the different types of organizations in forming your opinions?
You know exactly why it bugs you and you're absolutely right. I think what's confusing is how can other people NOT see these huge problems
I can’t see another reason why the lessons we learned from capitalism in the booming 20s and the following crash have very quickly been unlearned, as if the free market is a perfectly just and omnipresent force. Couple it with the utterly rabid obsession around communism and socialism, which might as well be swear words.
This logic only holds true if you are the benefactor (one of the wealthy) or you think that you will become one.
You can add to it or modify it as you see fit, but the vast majority of people just accept the default values and they're done.
Most people spend more time finding their login info than verifying their taxes.
With the amount people complain about the US system, it doesn't sound like they are doing the same thing.
Compare a UK tax form (not for the usual, simple case; I don't know if there is a form for that): https://assets.publishing.service.gov.uk/government/uploads/...
(Although as it says, 92% of people fill in this form online. I can't look, as it requires a login, but it should be a good UX going by the other forms on the gov.uk site.)
Most people don't require a tax return. They are on PAYE[1], which just happens (you don't have to think about it or actively do anything). _Generally_ speaking, you only need a tax return if you are self-employed as a 'sole trader', or are a partner in a business partnership, or have untaxed income such as money from renting out a property, tips and commission (over £2,500), income from savings, investments and dividends (over £10,000), or foreign income.
[1] https://en.wikipedia.org/wiki/Pay-as-you-earn_tax#United_Kin...
Companies can fulfill their obligations without resorting to trickery. They clearly aren't meeting the spirit of their obligation/commitment and therefore should be punished. So, the government should punish these companies by implementing your second point. If it wasn't clear previously then the industry behavior has now made it obvious they act in bad faith, and are a detriment to both consumers and society in general.
People with money/educated about taxes would actually take the time to fill out the forms and benefit from deductions. It wouldn't really make that much of a difference.
I also am wondering what is so difficult about taxes now? Most people with 1 or 2 jobs just need to fill out a 1040 form, which takes an hour or two at most, and send it in.
I really don't think we benefit society by catering to an uneducated/indifferent populace.
> People with money/educated about taxes would actually take the time to fill out the forms and benefit from deductions.
I don't think this is universally true. People will do a cost/benefit on this stuff. For some people, it will be worth the tradeoff required to maximally reduce taxes. For others, it absolutely is not. Why penalize the latter group?
> I really don't think we benefit society by catering to an uneducated/indifferent populace.
It's not catering to a specific group, it's avoiding penalizing that group. From my point of view, intentionally making taxes complex really amounts to an additional unwarranted tax on people.