At some point they are going to calculate what you owe based on what you provide them and what is reported to them, no matter what.
Laws that authorize "auto tax" can also come with extra reporting requirements.
I'm mostly a W-2 schmo without any particularly complex business arrangements and with a spouse who employs themself in a consulting capacity, puts the statutory maximum into tax-deferred accounts every year, and we have minor kids who are required to file returns due to kiddie tax laws.
I can imagine many people would rather pay a high three or low four-figure per year bill for tax prep and representation rather than give the IRS full access to their financial lives.
I do support (and strongly so) the idea that the IRS could provide simple, default tax prep based on the information they receive. Where I break is what escalation path should exist; I think there must remain an effective and private escalation path for more complex scenarios. (In many ways, that makes it even easier to implement. Make the simple case automated-by-default. Punt all the complex cases to the current system.)
Other things are needed only if we elect to method A of calculation, but not if we use method B of calculation. So I give him all the data; he computes my obligations using method A and method B, chooses the better option, and reports only the data needed to support that method's calculations.
I pay my preparer to be an expert in tax code, to represent me in any audits, and incidentally to prepare my return correctly.
Part of that expertise is that I don't have to be an expert, so I tell him everything and he politely rolls his eyes and smiles when I dump irrelevant things on his desk.
The not needed now but maybe later financials should already be reported by the financial institution to the tax agencies.
There should not exist a system where there is a method A, B or C and if you have thousands of dollars a tax accountant can find all the loop holes to make you pay the least. You should just pay what is owed, not more or less.
You wouldn't pay for tax preparation if the potential savings weren't more than what you pay him. With a simplified system there also wouldn't be much need for the audit help you are usually offered when using their assistant
That’s the information that I only want my paid advisor(s) to have; this is a privacy concern, not a cheat-on-taxes concern.
My data is my data. I truthfully and completely provide to people, companies, and government agencies who have a need to hold or process only that data is required.
I also have a group of advisors whom I trust entirely and I share data more openly so they can help me plan and execute better.
What specific positions (or even total account value) I hold in my various accounts is not required for the IRS to compute my taxes. My advisors on the other hand I willingly give that information so they can give me better advice/guidance.
My tax preparer knows what is required for the IRS and ensures they get that correctl, completely, and precisely nothing more. There's no way the IRS could find all the data that's relevant to my taxes without getting any not relevant data without some expert actor doing that filtering (and from a comparative advantage perspective, I want to pay someone more expert than me to do that)
> What specific positions (or even total account value) I hold in my various accounts is not required for the IRS to compute my taxes.
How can they compute your financial gains without knowing your portfolio changes? (sorry I'm not american and thus my preconceptions of how do you do taxes are weird for you).
But I think a better solution to the very real problem you've identified would be for your stock plan administrator to hold that information and transmit it to the IRS as basis information just like your retail broker now transmits basis for closed positions on a 1099-B, but only transmit it in the year the closing transaction happens.
If I vest RSUs this year and sell them in 2026, the IRS needs to know that basis in 2026, but they don't need to know it now (other than as it is already included in W-2 boxes 1 and 14, but that's only a dollar figure, not a per-share basis figure).
I can't imagine the majority of people happily accept a 10% (more for half of households) tax hike, when companies already CC the IRS on all the forms they're regurgitating.
"The most recent IRS data revealed that Americans who filed taxable returns paid an average income tax payment of $15,322 in 2018. This number was calculated based on the returns of over 153 million American households who filed during that period, which included just over 100 million taxable returns."
I can't imagine any scenario that most people (anywhere close to fifty percent of tax payers) would be willing to lose a significant portion to all of their refund check by needing to pay a tax preparer potentially thousands of dollars.
Cool beans. Literally nothing preclude you using a tax prep service but using the IRS's tax declaration system, which would double up as a simple tax prep system.
That's what happens just about everywhere in Europe: you log in a dedicated government service, and you do your tax declaration. All the stuff the government knows about (salary, loan deductions, dependents, …) is already input, but nothing precludes drilling down and updating details. Nothing is lost compared to a paper declaration.
The IRS is not motivated to collect more income or to deprive taxpayers of refunds. They're motivated to do their jobs, whether that means issuing a notice of amount due, or paying out a refund check (which they do for millions of taxpayers without issue, every year).
Wait, can you explain how tax brackets work because I think there may be a fundamental misunderstanding here.
If we have two brackets, 10% for <=$100 and 90% for >$100, what do you think the tax bill would be for someone who earned $101?
$10 for the first bracket. The remaining untaxed income is $1, taxed at 90% = $0.90 tax.
But the Republican Party has spent a lot of money to make people think that the tax would be $90.90 (i.e,. a flat rate), which is why so many people are opposed to increasing the tax bracket rates...even though the actual affect is marginal to most people (even those affected).
I feel like every April news orgs should just run segments with accountants doing this example.
Even if you have super low income and you are on the border for benefits (EITC, Medicare), donating to a charity will not make you eligible for those benefits because that eligibility is determined by AGI, which is income before deductions.
The only situation which this makes sense on net is if you tell your tax advisor that you want to donate some amount of money over the next few years. Then the advisor might tell you to donate in high-earning years to offset a higher marginal rate. In the above proposed scheme, the IRS would only get one year's worth of data, so it cannot recommend you this type of tax avoidance.
If you bunch deductions, you might alternate between the standard deduction and itemizing deductions, meaning if you want to support charities with $10K per year, you're better off to donate in Jan and Dec of the same year (itemizing), then skip 13 months (taking the standard deduction), then donate twice in the year after that (itemizing), etc. With the increased standard deduction, this may be needed to allow your donations to become deductible at all.
There are other planning strategies that a combined advisor and preparer can help with. (Using your HSA optimally as a retirement account. Optimizing your Roth conversions over the years. Modeling whether Backdoor Roth contributions make sense (or "what would you have to believe is true to have them make sense?") For business owners, setting the balance between your salary and distributions of profits.) Those are advice activities that overlap with a detailed understanding of your financial and tax situation and often mean that you have to change something about the structure or timing of your activity to accomplish your goal.
The IRS is in an OK position to look back and judge "based on what actually happened, here's what you owe", but in a terrible position to offer optimization advice.
For example, if you fill out your form by hand and say that you owe X, using the single-filer rates but you're married and should have used the married-filer rates, the IRS will notice your error when they process your return and send you a refund check for the difference.
A tax advisor will advise you to possibly make a donation...if it makes sense to do so (i.e., if you itemize). Because you're specifically paying them a lot of money to minimize the amount of tax that you owe.
The tax authority sends you a summary and you just approve it.
I'd wager the majority of people wouldn't have a reason to submit a revised return. And if the federal government generated your return, hopefully that would give them reason to automatically exclude you from audit, (ideally) reducing the burden of auditors.