IRS Direct File to open to all 50 states and D.C. for 2025 tax season
axios.com
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- Many if not most software engineers in California earn more than the $200K household limitation for using Direct File
- From my understanding there is no way auto-generate my state tax return from Direct File so I would have to do all the work twice even if I can use it
- Complicating my tax situation (legally) allows me to save more money, I would save far more than the price of TurboTax by using TurboTax instead of Direct File, as much as I hate it
There are 50 states, and every single one of them has their own idea of what an income tax return should look like, so a direct file that handled state returns would take several years and hundreds of staff to develop and maintain.
The US also has significantly more tax planning/tax structuring opportunities than do other countries, and DirectFile doesn't even try to handle those...but neither do its foreign counterparts. If you have a more complicated tax situation, like most software engineers do, than DirectFile isn't for you, and never was intended for your use case.
Or just contract one of the companies that already do it with a public-private partnership. HR Block or whatever gets paid say 2x their current tax prep revenue in exchange for being the white-label direct-file available for free to everyone.
Like these tax prep companies are crazy cheap for just being able to hit import next next next next next submit and never think about taxes ever. The work is already done, why duplicate it?
The IRS tried that already and the 3rd parties just used dark patterns that tricked customers into paying for unnecessary services.
That's not my problem. The states are part of the country. This is as bad as restaurants charging tips instead of stating one number. Government dudes should meet and work it out between state/federal and give me one damn number.
All I want is one number.
You would never take the one number if you could save money by making it a thousand instead. Eg. if your state did that simplification, youd move to a different state that doesn't have the simplification so you can save a couple bucks on the taxes
States are NOT an administrative subdivision of the larger country. This is a common misconception. They are not at all like Japanese prefectures, not like Canadian provinces, nor like the counties or parishes that US states are subdivided into.
States are fully sovereign entities that retain to this day certain inalienable rights vis a vis the federal government.
A good analogy is that the US is more like a stronger version of the EU. States like New York and Texas within the US are more like Germany or France-- they've ceder some rights to the federation but retain many others. The US constitution, which is short and easy to read and required reading for the US Citizenship test, clearly outlines which powers are reserved for which part.
>That's not my problem. The states are part of the country.
America has or has traditionally had a strong culture of self determination and citizen involvement in and ownership of politics and government policy.
Another word for this is democracy. Real, genuine, messy democracy. America is not a service provider to you. It is a union or coop you are a part of.
You are not a customer of your country. You are a member. A shareholder.
This attitude is I know very foreign to many people who come from elsewhere and only know authoritarian states or democracies in name only. Or very young people who have caught on that civic culture is dying in most of America.
But it's fundamentally diametrically opposed to what this country has always been intended to be at its best. it is very very much your problem
The original idea of the US was a decentralized state. The Union is the sovereign entity, while power rests with the individual states, unless explicitly given to the federal government. Over time, it became clear that you can't run a country like that in the modern world. Slowly, with creative interpretations of the Constitution, the federal government gained more and more power over the states.
One of the distinctive features of the actual US system is that it's often unclear which level of government has the authority to regulate a particular matter. Much of the political debate is about the constitutionality of laws and regulations, which may have been in force for decades. And controversial legislation often ends up in the Supreme Court, which may then decide that the state or the federal government did not have the authority to regulate that.
The way to extend this, if the federal government wanted to push it, would be to define a standard export format from IRS DirectFile, containing all the information in it...
... then make some federal money contingent on states implementing a filing system with an import function (for the shared data).
Nice clean interface, and still states' choices on if they want to support.
In any case, like the root of this comment tree says, the best way to make sure this program lives to reach us is to make sure it paces itself. If that means another year or two of TurboTax, that's A-OK!
Saying the majority of engineers in California make at least $200k makes you even more out of touch. According to Glassdoor, over $200k for a SE in CA is 90th percentile. The average SE in CA makes $132,000
https://www.ziprecruiter.com/Salaries/Software-Engineer-Sala...
https://www.levels.fyi/t/software-engineer/locations/san-fra...
48 x 40 x $70 = $138,240
Which is far from $200k. How are you computing?
Most of Hacker News and indeed the tech community at large exhibit "I don't understand life outside of California cities." syndrome, this by itself is nothing new.
$200K as the entry level for FANNG ( what it used to be call ), and then Big Tech and now Magnificent 7 has been the norm on HN since 2016. It wasn't until 2023 did reality started to hit many.
One of the best ideas the Reagan administration had was paperwork simplification, they introduced a 1040EZ for (roughly) the same kind of filer that Direct File works for.
My son put off paying his 2023 taxes to the last minute, I told him he should try Direct File (I'd believed the story that it would be easy) but when he tried it he had extreme difficulty authenticating himself, I think because they check you against consumer databases and they could not compare to past tax returns, credit history, etc. because this was his first tax return and he had no credit history.
We were forced to wait for a long time to talk to a human operator for him to verify his id. In that time I found out that there was no longer a 1040EZ, see
https://www.investopedia.com/terms/1/1040ez.asp
but I was able to fill out a complete 1040 and the New York equivalent of it before we got through to the operator. We just got the check from New York the other day after about 6 weeks, haven't heard from the IRS yet.
My wife and I combined make about $300K/year. We don't run a business, don't make charity contributions, only pay ~$5K in mortgage interest, and don't have kids. We don't even do retail stock investing (EDIT: And I haven't exercised any employer stock options), just a 401k, an IRA, and a 5.25% savings account.
We take the standard deduction. I can't imagine a CPA would be able to find so many possible deductions that it would be worth itemizing.
I had just bought a house, just bought a hybrid, started working from home, and was new to the US.
"What are you claiming?" "What can I claim from this?" "I'm not sure. But I can put these numbers in here and see what it says."
You're literally paying for someone to type in the same numbers you would, with as much (or at times less) knowledge than you (who is also less invested than you in getting it right, but much more invested in selling their 'audit protection' stuff).
I do my taxes first. You (CPA) look over it, if can save me any additional money, I'll give you 1/2 of the additional money saved as your compensation. Deal?
All they did was fill out Turbotax for me, and charge me an extra 150 for that.
There are alternatives to CPAs, who are licensed by individual states and don't necessarily specialize in taxes. Several states, including California, require testing and registration for paid tax preparers who aren't CPAs or Enrolled Agents. EAs are the only federally-licensed tax professionals with unlimited practice rights before the IRS.
It's reasonable to assume that CPAs pass along the costs of their marketing and lobbying efforts to their clients, without any guarantee of higher quality compared to the other professionals available.
Though it's also very likely at these high incomes that you would be disqualified for other reasons (investment income etc)
Did I do something wrong?
Edit: I understand now. DirectFile is for Federal and MassTax is for State taxes.
have complicated taxes, due to how they're making that much money. I don't have a problem with them optimizing for the simpler case (eg the intention behind the 1040EZ) while software engineers, who can afford a CPA to deal with optimizing their tax burden off non W2 income, aren't initially able to use it.
In terms of societal and long-term impact of eliminating the middlemen, Direct File has much more potential. Hopefully, in a few years, states will integrate their tax systems with Direct File. Perhaps one day the government will finally send us a completed tax return as opposed to the other way around.
And that is speaking as something who used to work inside government.
Where are crimes more likely to occur, a city with 10,000 or 1 million? Where are financial crimes more likely to occur, people that make $10,000 a year or people that make $1 million or more a year. I rather have these accounts move into forensic work and go after the wealthy tax evaders.
IRS is an enforcement agency that specializes in tax collection and fraud. People that are clamoring for reduced IRS staffing are ultimately support of defending the police. I rather have a well staff IRS going after those that evade paying their taxes, probability speaking the wealthy.
Note that it's also totally incompatible with their idea that the government should be run more like a business... so you're going to strangle the one part of it that actually generates revenue?
Many economists don't agree though. If you care about economic success of the country, the goal isn't 'collect as many taxes as possible'. The goal is to make the citizens wealthier in real terms.
Effort your citizens put into tax collection is 'dead weight', and doesn't contribute to exports etc. However, effort your citizens put into trade that (for various reasons) ends up under-taxed, usually does add to the economic wellbeing of citizens.
Therefore, it's only necessary to collect mostly-correct taxes from most citizens, if doing so let's you redirect labour from tax collection into other work.
Is it unfair? Yes. But it's still good economic policy.
[edit] it occurs to me that this is a term of art you may be unfamiliar with, so reading it in an unusual sense:
https://en.m.wikipedia.org/wiki/Rule_of_law
Basically, it’s a super-important thing to have if you want to live in a “developed” country that doesn’t have all kinds of very-bad problems, and isn’t some proxy for level-of-authoritarianism, which is how it seems you’ve read it. It’s about actual and perceived equal treatment under and efficacy of the law, not how much law (if you will) you have. A minarchist libertarian state would sensibly seek to have high rule-of-law, for instance.
"Rule of law" requires government (and it's officers) be above all, both in practice and in theory. Just on the basis of who can violate rights, perceived or otherwise, and who in turn pays for the consequences, it fails in the test of "equality". And in reality, it's enshrined in multiple jurisdictions varying levels of immunity.
Even if you think tax money, once assessed and collected, belongs to the government.
I don’t think we’re gonna bridge that gap productively in a comment section. Have a nice weekend (sincerely).
You can call that slavery if you want.
But the goal of taxation isn't to maximize the country's economic success or overall wealth.
It's to fund necessary government services (schools, courts, police, military, etc.) and to redistribute wealth (Social Security, Medicare, Medicaid, etc.).
We only want to maximize national wealth after we've funded government services fully and redistributed wealth (and sufficiently protect the environment, protect workers, etc.).
So if funding the IRS gets you back more money, that's always good, because it's by definition going to the things that we have democratically decided are a higher priority than maximizing national wealth. And if we democratically decide that we're spending too much on services or redistributing too much, then we cut those intentionally -- not "accidentally" by underfunding the IRS.
Even if under-collecting taxes is good economic policy by the extremely narrow measure of GDP, it's terrible national policy. It's like saying that accidentally redirecting an extra $500 per person to the military is good military policy. I mean, sure it might be. But that doesn't mean it's good national policy.
There's a chicken or the egg issue here. If your country isn't rich enough to fund government services such as education, transport and healthcare you need some economic development first.
Just like how "collect as many taxes as possible" isn't actually a good goal, just "make the citizens wealthier" isn't actually a good goal either because it says nothing about the distribution of that wealth.
If we enacted a law that made 99.9% of all citizens absolutely destitute to the point where they must eat rotten food found in the trash to survive, but this law also multiplied the wealth of Bezos and Elon a millionfold, then that would successfully "make the citizens wealthier" in sum.
Taxes are used to run society, from it's roads, fire department, education, social services, and much more. A lot of people are pushing to cut down on those things, to decrease the bounty that society offers regular people who partake, because "we just can't afford it." and the reason we can't afford it is because there is an overly focus on "make the citizens wealthier" even at the cost of most citizens.
The "much more" is much, much, much more than anyone thinks. The federal budget is tremendous. People cannot conceive of trillions, yet the federal government alone spent over six of it a year, three years in a row.
Virtually nobody has a problem with tax funds being used to build roads and bridges, fire departments, and whatnot. It's everything else that's contentious. Public schools are visibly wasteful, with the number of students and teachers overall remaining largely constant, but the number of administrators having increased many-fold in the past decades; at this point it's a jobs scheme for adults, not an education scheme for children. Nonprofits received hundreds of millions of taxpayer dollars to support illegal immigration. Et cetera.
So many things in the federal budget appeal to a fringe minority of advocates, yet the money hose continues to flow. This is not the way that a federal government with clearly delineated limits should work. Something is wrong.
In part, because of comments using wording like "hundreds of millions of taxpayer dollars" as if it were huge, when it describes a pretty miniscule part of the 6,000,000 millions in the budget. (It also misses those same immigrants paying billions in sales and other taxes here, including quite a bit of Medicare/Social Security funding they'll never get back.)
As a result, Americans have a massively skewed idea of where it all goes; they think NASA gets 6.4% of the budget when it gets 0.5%, for example. https://www.businessinsider.com/nasa-budget-estimates-opinio...
Defense, healthcare, and social security make up the vast majority of Federal expenses. Education is, comparatively, a pittance; nonprofits serving immigrants don't even show up on the chart as a full pixel.
https://commons.wikimedia.org/wiki/File:2023_US_Federal_Mand...
https://commons.wikimedia.org/wiki/File:2023_US_Federal_Disc...
> The federal government provides 10.5% of funding for public K-12 education.
https://educationdata.org/public-education-spending-statisti...
Hot take: a lot of tax revenue does contribute to exports etc. The government is spending a lot of money re-digging that shipping channel in Baltimore after the bridge collapsed. Just one recent example, but pretty much every bridge and port and road in the world has a lot to do with taxes.
The government is also spending lots of money on social programs people like too much for even the Republicans to try to repeal, yet the government is not taxing enough to cover them. Letting rules slide for certain people means more debt for everyone else, and is what a lot of economists would call "arbitrary redistribution", which is bad.
Do you realize that those taxes go to fund public services and help people stay afloat, which I don't need a study to show you, creates far more customers for all these tax evaders in the first place? Go back 50 years to see what this country used to be and how much shit it got done and compare it to today. There are measures of productivity engineered in math, and then there is common sense: majority of existing infrastructure was built decades ago and now it costs billions in overrun projects to build a single station in NYC.
The current system works just fine in terms of punishingly taxing everyone on this website and the poor, that's why it feels like I'm contributing half of my salary to the federal government. What it doesn't do is take its share from extremely wealthy, who in turn DO NOT SERVE the economy because they're effectively stateless agents, who can put their money into Seychelles or whatever. Nobody would bat an eye if those billionaires would contribute the billions to the economy. Instead you get people crying about how "the government is inefficient, it gets nothing done, I'd rather the titan spend it as they see fit." But if this ship called United States floods they will be the first to abandon it, just like a famous critter.
I'm sorry but posts like this are the exact definition of bootlicking.
Many government activities make sense from that perspective. By redistributing money from the top 10% to the bottom 90%, they increase the economic success of the country, though possibly at the expense of economic output.
And fairness is also important, because societies are built on trust. When people don't trust government institutions and each other, everything starts falling apart.
A city of 10,000 may very well have a higher rate of crime. In terms of your analogy, consider my lawn man, who only takes cash for his services. I know he's not taking in millions of dollars a year (or even hundreds of thousands), but I also strongly suspect that he does not report all of his income.
Same goes for every cash-only business I know.
> I rather have a well staff IRS going after those that evade paying their taxes, probability speaking the wealthy.
I'd rather the tax code be simplified so that nobody has access to loopholes, not just the wealthy. Not much you can do to hide, for example, a land value tax.
Unfortunately I’m not sure this is entirely true: https://www.nytimes.com/2021/04/03/opinion/sunday/property-t...
Where are people being forced to use a 3rd party? My understanding is that direct file is optional, hiring someone is optional, and using tax software is optional. Isn't it still possible to file with paper on your own?
Are you perhaps thinking of when IRS said they couldn't afford to go after wealth tax evaders because they were underfunded?
By mapping audit costs and returns across the income spectrum, he continued, “We saw very clear evidence that the return from audits at the top of the income distribution really exceeded by quite a bit the returns at the bottom of the income distribution.” With the top 10 percent of earners, they found, audits have the potential to return more than $12 for each $1 spent.
https://www.news.harvard.edu/gazette/story/2023/07/turns-out...
Most of the low income audits are related to the EITC, because people tend to fudge checking a box to get more money.
There are plenty of legal ways to evade (or at least not pay) taxes as well, though. An easy way, for example, is to store wealth in the form of stock; generally you don't pay taxes until you sell, so increased value is ignored until then, but once you have that many assets you can borrow money using the stock as collateral, and in some cases I believe you can even write off the interest. All of this is perfectly legal, and I'm not sure if it can or should be "fixed", but a lot of cash that might otherwise be taxed simply isn't.
For that matter, they could also buy a piece of art for a million dollars, a year later get it appraised as worth $40 million, donate it, and then write off $39 million. Again, as far as I know this isn't strictly illegal, but it can be used to evade taxes.
This is so wrong it hurts my brain. The IRS requires using a qualified appraiser, and none of them will suddenly appraise an artwork for 40x its last sold value. The IRS aren't fools-- they'll quickly clamp down on such an anomaly.
Even if this amateur scheme were true, the individual wouldn't write off $39 million. They'll deduct the tax rate (%) of $39 million.
I thought it was implied that writing off $39 million didn't mean a $39 million dollar reduction in taxes.
Although I guess there is nothing stopping Soteby's from setting the base price absurdly high to begin with . . .
It's all layers of legalized scams. Business expenses, mortgage interests on investment properties, technically charitable donations, massive tax exempt funds, etc. And all these interacting in creative ways.
Let say you won the lottery, now you can buy that dream house. Do you get a mortgage or pay off the sum in the cash on hand so you are not losing moneys in interest payments? Why waste money on interest and save in the long run? Which is it, take a mortgage or pay interest?
Take the mortgage and the tax deduction. First open a trust or a shell company. Move $1,000,000 into it to back the house purchase as Lender X. Take a loan against Lender X, which is yourself. Now on the tax deduction, state the amount of interest you paid to yourself as mortgage interest on your house, since you could / didn't pay in cash. Use this to place yourself into a lower tax bracket and put some of those tax dollars into your account. Creative account is legal and can be exploited by the rich. Even more when you use money to maximize the legal loop holes by paying others to find and construct other legal loop holes.
Now try to remove that tax loop hole. Near impossible, this would remove that the tax loop hole that allows others not paying a mortgage to themselves, but to a Lender Y, a actual bank or credit union. This tax deduction is near impossible to remove because it cuts out the middle class and poor ability to buy a house.
Where is crime most likely to happen, in a city of 10,000 (A) or 1 million (B)? 10,000 is 1/100 of 1 million. Now where would you bet single (1) crime will happen, city A or B? City B 100 times more people to commit a crime than city A. Lets rephrase, you have the ability to take 10,000 (A) lottery different lottery tickets or 1 million (B) lottery tickets? Which would you take tickets A or B to maximize your winnings?
Cash based business that don't declare income in hospitality industry as tips. How many of those individuals make 10,000 or 1 million a year? How many people tip in cash versus in credit or debit card? More people have been using credit cards to make purchases versus paying in cash. When was the last time you payed in cash or be a party member in a pure cash based transaction in a restaurant? How many people use their company business credit card to pay for corporate deduction dinners and how many pay in cash?
How do you plug this legal loop hole that places more tax dollars into a rich person's hands? Start by shifting money into a trust or shell company. Pay an artist $5,000 to create a new piece as Company X. Company X now auctions off the art. You, as the hidden supporter of company X, buy the art, and pay yourself at auction, for $50,000. Now you donate that art to a museum or other non-profit that fits the tax deduction bill. I just donated $50,000 because I made the declaration that $5,000 is actually $50,000 as proven by my auction bill, secretly paid to myself.
Lets deploy a use tax. A person that drives more should be paying more for the road, repairs and maintenance. How much do you use your vehicle for person versus business? How much of your driving is just to get to work and back home, or driving from work to lunch and back to work? I'm using my car 80% for work driving to and home, and only 20% for personal. My use tax should be 20% of what I own, my employer should be paying 80% of the usage because it is being used to benefit them, but since I am the owner of the vehicle I pay 100% of the use tax. Now I am being taxed 80% to be employed.
That seems to be an ongoing headache in the US with executive branch created programs, courts can just immediately squish them or political winds can change, then they're suddenly gone.
Something like this, in order to be permanent, needs congressional approval.
That's the Grover Norquist (and Republican) argument for not having IRS Direct File to begin with: if filing taxes becomes easy, people might not hate the IRS and hate taxes.
https://www.propublica.org/article/how-the-maker-of-turbotax...
Because if they did, they'd know that filing taxes for low income people with kids is a HUGE bonanza, and they'd work like hell to implement a system where all tax credits were applied to individual paychecks, not lump sums during tax season. It's the one time of the year when their pockets are flush with cash.
I like preparing and paying my taxes.
> The IRS should have to declare what they think you owe before you pay or submit any paperwork
Agree.
Very. Had the GOP won the senate in 2022, this would have probably been cut already. Depending on how this November goes the policy could definitely be reversed.
> Something like this, in order to be permanent, needs congressional approval.
This program did come from Congress. It was apart of the inflation reduction act.
The ACA is a classical example. Instead of improving it or proposing a real replacement, they campaign for repealing it and some incantations of "free market" without explaining how patients won't get screwed over even more than now.
The president may be all we have, but he is constitutionally forbidden from acting like a king. Though, of course, that hasn't stopped presidents from trying.
This fails to realize Congress works entirely the way it was designed. As you said, inaction == lack of consensus.
Imaging running a country where significant ways of life (influenced by laws) change willy-nilly depending on the flavor of the day? The legal whiplash would be absurd.
So, people often look to the president as some sort of king analog, and demand action via Executive Order - then cry foul when the next president undoes the previous one's EO's... it's lunacy and not a good way to run a society.
Don't really think so.
The 1929 Permanent Apportionment Act subverted the intentions of the founders and clearly swayed the power balance back towards rural areas, even though they have equal representation in the senate.
I don’t think that’s correct. There is way too much propaganda coming from the parties to think that voters have made up their minds based on the facts. It’s actually quite hard to get the facts because the media is mostly reporting politics like they report a football match.
Of course these were not complete elimination of programs, but adjustments. And you could argue that there were other reasons besides partisanship, like the end of the Cold War and budgetary issues.
...you mean when the USSR collapsed, and Cold War ended?
It's going to be hard to argue with people on the basis of what was "good". That's subjective, and the very basis for why there are separate parties.
I'd expand this to examples of either party undoing legislation the other championed and passed. It's exceedingly rare, in large part by design.
We didn't even allow the 2001 Bush tax cuts to automatically expire at the end of 2010, despite control of the House, Senate, and White House passing from the Republicans to the Democrats during the intervening years.
The reason Republicans are mentioned above is that they have a well documented public history of endorsing and carrying out these kinds of shenanigans. Democrats, though cut from the same cloth, somehow manage to be one step above on an imaginary decency scale.
Since the Republicans lacked 60 votes in the Senate and zero Democrats supported the Bush tax cuts, The law enacting them was passed using budget reconciliation rules.
> Budget reconciliation is a special parliamentary procedure of the United States Congress set up to expedite the passage of certain federal budget legislation in the Senate. The procedure overrides the Senate's filibuster rules, which may otherwise require a 60-vote supermajority for passage. Bills described as reconciliation bills can pass the Senate by a simple majority of 51 votes or 50 votes plus the vice president's as the tie-breaker
https://www.wikipedia.org/wiki/Reconciliation_(United_States...
Using budget reconciliation rules automatically set a sunset date for the tax cuts, after which they would automatically expire.
When the tax cuts should have automatically expired at the end of 2010, the Democrats controlled the House, Senate and White House. Despite frequent claims over the decade that tax cuts for the rich were morally reprehensible, the Democrats did not allow the tax cuts to automatically expire, extending them for two years in the lame duck session of Congress, and then most were made permanent two years later before they should have expired again.
Isn't that the opposite of "undoing legislation"?
The main change at the border is a larger number of migrants. Migration trends are up globally, for a variety of reasons including climate change.
The GOP has controlled the government mulitple times since ACA passed. That nothing was done shows it's a talking point.
Legislation is hard to overturn. Executive actions, less so.
But yeah a lot of things end up being campaign talking points. Like Obama saying they'd enshrine abortion rights into law and uh didn't.
[1]: https://www.npr.org/2017/07/27/539907467/senate-careens-towa...
[2]: https://ballotpedia.org/Timeline_of_ACA_repeal_and_replace_e...
To underscore this, the IRS is not an independent agency [1], but a bureau of the Treasury.
[1] https://en.wikipedia.org/wiki/Independent_agencies_of_the_Un...
The inflation reduction act directed the IRS to perform a study on Direct eFile. Implementing an actual pilot and then expanding to a permanent tool was based solely on executive authority, so either congress or the president could choose to scrap the program in the future.
> Inflation Reduction Act §10301(1)(B) TASK FORCE TO DESIGN AN IRS-RUN FREE ‘‘DIRECT EFILE’’ TAX RETURN SYSTEM.—For necessary expenses of the Internal Revenue Service to deliver to Congress, within nine months following the date of the enactment of this Act, a report on (I) the cost (including options for differen- tial coverage based on taxpayer adjusted gross income and return complexity) of developing and running a free direct efile tax return system, including costs to build and admin- ister each release, with a focus on multi-lingual and mobile- friendly features and safeguards for taxpayer data; (II) taxpayer opinions, expectations, and level of trust, based on surveys, for such a free direct efile system; and (III) the opinions of an independent third-party on the overall feasibility, approach, schedule, cost, organizational design, and Internal Revenue Service capacity to deliver such a direct efile tax return system, $15,000,000, to remain avail- able until September 30, 2023: Provided, That these amounts shall be in addition to amounts otherwise avail- able for such purposes
Good Lord
I sold a house in 2019, I walked away with only about $15k profit after paying everyone. Bought the house for $335, sold for $370ish. I think my principal was around $310k at the sale. I got a letter in 2022 that I owed the IRS something like $150k or so, some shocking amount of money. Freaked me the hell out. I had to dig out all of my paperwork from the sale and send it to them. All of it but, I forget, maybe $100-1k was dropped. I have no idea what their deal with that was. I had a mortgage, paid the mortgage to my mortgage broker, and when I sold it paid the mortgage off to that mortgage broker. Don't they handle that? I don't know, it was my first house sale.
I'm 40, I've never had the IRS annoy the hell out of me until the last 5 years and now I get a letter from them and my heart stops.. Like, what is it now, masters of my w2? Where I have erred today? It feels like they're practically targeting me at this point. I get letters from them and wonder if they're even legitimate so I call in to verify. When I go to the irs.gov site that tells you what you owe, it doesn't even match what any of my letters say. Right now it says I owe money from I think 2016 that was sent to collections and I've never received a letter for that. Collections! For my taxes? That you pull out of my paycheck?? I don't have ANYTHING about that on my credit report. I also have no way to pay it because it's "In collections."
Seeing all of the rich assholes skate by with tax evasion and all of the loop hole work they do, then knowing they're on my ass when I'm just a dude getting a salary just pisses me off so much.
Be more condescending though, that's helpful, wise one.
I didn't say I KNEW it was the issue, I said it was potentially that. The IRS doesn't say "Hey you messed up here, fix this, that's the problem." They just send you a bill, which sucks. I had NO information on my $150k house sale tax and had NO idea what information they needed to rectify it.
The IRS doesn't know about your income until the end of the year, when it gets reported to them by your employer.
I'd love to hear you disprove to some omnipotent government entity, with no information from their side, that you did NOT make $150k extra cash last year. Lets go, bud. Prove your lack of $150k. You didn't make an extra $150k last year? Prove it. Show your lack of paystubs against our information that we won't provide you with.
Some of you absolute mental giants think I'm crying about my anecdotes when they're literally just my examples of how the IRS gives you no information and just sends you a bill for $150k. That's the point of the post. I absolutely am not asking for your tax advice.
My issue was that my with-holdings and everything looked fine. But I was not having any federal taxes taken out on my paychecks for federal with-holdings. Turned out to be a software issue that the company who makes it was able to correct.
You have control, they don't.
Withholdings are calculated based on elections you make on an IRS form called a W4 (which could be electronic or paper). Neither your employer nor the IRS "control" that, but there are some common case defaults.
It's on each taxpayer to understand their actual tax liability situation and adjust withholdings accordingly.
Use your W-2 and this calculator from the IRS[1] - ensure that your W-2 includes the bonus you received (I would imagine it would since you got taxed on it). That should give you the values you need to have in your W-2 to avoid a massive tax bill at the end of the year.
You can also set a additional flat amount of withholding per paycheck. You get any overpayment back as a refund.
[1] https://www.irs.gov/individuals/tax-withholding-estimator
This is a common gripe I hear from US tax filers, and I fall into the same psychological trap myself. After all, it always feels bad to have to pay a 4 or 5 figure sum to anyone.
Instead, you should see this as a benefit -- you had the opportunity to extract gains from the stock market (or other investment) on money you rightfully owed to the government; they only came to collect it at the end of the year instead of with each paycheck. Conversely, a tax refund should be seen as a disadvantage, as the government withheld more money from you than it was entitled to.
Although I suspect this only matters to FANG where the changes to withholding from the Tax Cuts & Jobs Act meant you had to modify the supplemental withholding rates so you wouldn't get penalized.
https://pburgoscpa.com/managing-your-bonus-in-nyc-a-high-inc...
For your home sale, the person responsible for closing the transaction files Form 1099-S with the IRS, reporting the sale amount (which they're responsible for) but not how much you paid for it (because you're responsible for that). You should have gotten a copy of the 1099-S, which was your clue that you needed to report it on your return.
You type in like 14 numbers, each very clearly delineated.
But... if you are a business owner, it takes like 2-3 weekends. (I say weekends, because we work all day during the week)
Do you participate in SPP? Then the form you get will have an incorrect cost basis and you need to manually correct them. I guarantee it.
Do you trade individual stocks (e.g. RSUs)? A bit more work.
Got a K-1 form from an investment? Could be straightforward, or if it's real estate, a major pain to fill out those tax forms.
I’m guessing you would find it equally confusing if I told you we’d pay a premium to use a private DMV or private post office. Here in the US, that statement wouldn’t be controversial at all.
Interesting. I am currently renewing my and my spouse’s passports while also trying to get first time passports for my children and I couldn’t find the process more outdated and borderline kafkaesque. If you told me the website was built in 2003 and hasn’t been updated since then I would believe you. I can only renew my passport by snail mailing everything including my existing passport. I can only get my kids a passport by physically taking them to an approved location for processing. I could not get an appointment for about a month at any location near me. As a bureaucrat myself, I just find this level of hoop jumping to be ridiculous.
It was taken down after the pilot for them to adjust and fix the process but there are improvements in the works.
https://travel.state.gov/content/travel/en/passports/have-pa...
I did a digital renewal for my passport and it was fine also. It’s a once in many year event, so it doesn’t bother me that I need to go to a special place to submit documents.
Switzerland was the only one with better govt service. Everywhere else it was significantly worse than the US.
Surprisingly France and Germany were worse than India in terms of obscure things needed for getting anything done and no exceptions for anything. The US on the other hand, if you can go talk to someone in person they'll make it happen.
Sounds like something Turbo/Block would say.
I don’t understand how more competition in this area could hurt the customers. All the “file federal taxes for free” offers usually cost me around $70 since I have more than just W2.
'For you.'
Which covers most sole-proprietors who have 1-2 contracts, like myself.
> Rep. Brad Sherman (D-Calif.), an accountant and senior member of the House Financial Services Committee, told Axios in April that he wants to go "way beyond Direct File," calling for a "self-populating form."
>
> "Why in the heck should you have to fill out your return when the government has all the information. They know what's on your W-2 form before you do. They know what's on your 1099 … Do you know how many mistakes people make?"
Now fix Workday, too.
It was incredible how simple it was.
2. Taxes are a means to an end, as is the government. There's no benefit to fining people for clerical mistakes besides encouraging them to not make them. There's no value created by fines. There's no shareholder greedily pocketing the revenue. If they can avoid mistakes for people, that benefits government employees by having to waste less time on stupid stuff, the taxpayers by not having to waste time on stupid stuff and avoiding fines, and the people at large by not having to waste public money on paying people to fix stupid stuff on people's returns.
2. In an ideal world, yes. In practice, citation needed.
EITC makes up 36% of all audits and its for people making below 20k.
https://www.propublica.org/article/earned-income-tax-credit-...
Tax policy is the government's strongest tool to change personal behavior, and if the system is simple and automated it doesn't do that at all.
If anything it’s a great opportunity to put personalized suggestions for how to reduce one’s taxes (=change behavior) directly in front of the eyeballs you want to see it. Put it directly on the page where you click “looks good to me” on the automatically-filled-in tax form.
“Looks like you’ve never used your one-off solar panel federal tax credit. Click here for information on how to save up to $xx,xxx on next year’s taxes, while also reducing your energy bill!”
I'm not sure I agree. For example, I used to pay city wage tax to one municipality, and I decided I did not want to pay that city tax anymore so I took a job in another area that no longer had the city wage tax. I would be due the wage tax no matter what, and I was aware of exactly how much the wage tax was by looking at my pay stub every two weeks. Having my taxes prepared for me doesn't really change that.
It is possible to do the same societal effect in other ways, but the US does a done at the federal level via taxes.
Go look sometimes at the list of things you can claim in various cases.
It's even more explicit when you look at business tax returns and schedules.
You only get fined if you deliberately (and fraudulently) fuck up.
If you make a mistake, they give you a chance to correct it before fining you.
I forgot a W-2 once (I switched jobs 4 weeks into the year and the first employer gave me my W-2 late) and filed without it. My return was rejected and I got a letter telling me why and requested an amended return. I amended, re-filed, got accepted, and got my refund. No fines.
And certainly no jail time like a lot of memes like to suggest.
https://www.propublica.org/article/how-the-maker-of-turbotax...
> Private tax services "have every incentive to find the deductions that will yield them the best return," Zupkus said, adding that the IRS wants "to extract as much as possible from the taxpayer."
I think it's worthwhile to acknowledge that there are indeed slightly different incentives involved when it comes to the private sector handling tax prep versus the government.
But it's laughable to argue that the private sector is not in it to extract as much as possible from its customers.
ProPublica's series on the nasty ways TurboTax fooled its customers to extract more money from them is a clear example: https://www.propublica.org/series/the-turbotax-trap
Edit: I think some commenters are missing my point here. I'm not agreeing with this spokesperson. I'm saying that it's disingenuous to argue that the government is trying to fleece consumers when it's clear that the private sector has been doing so for some time.
I have had the IRS unprompted send me an additional refund because of a mistake I made on my forms, and they caught.
(They also included a letter saying that if I thought my mistake was right, I could fight the refund, or file a new amended form and go for a bigger one.)
It is a massive organization filled with uncoordinated people doing their level best to produce Brownian motion.
I can understand how you are frustrated about the situation, but this does not seem to me to be random behavior, but rather straightforward rule following.
What exactly are you railing against? It sounds like the IRS is following the rules here.
Zooming out though, I think Direct File or something like it is actually the right way to go. This would never have happened if the IRS just told me what it expected of me instead of playing this weird entrapment game where I was expected to tell them what they already know.
I moved house from AZ to GA in 2022 and both State revenue departments refunded me more than what I expected from filling out the partial year forms. GA was almost double[3]. The move included a corporate 6 figure relocation package, with all the fraught income tax issues with that. A lot of anxiety... just dissipated.
[1] I download the pdf forms and instructions and just fill them out, and if I have to I print 'em out and mail 'em in.
[2] I try hard to keep refunds to a minimum, certainly less than $1K.
[3] My partner and I puzzled over the GA instructions for quite some time, which are impressively ambiguous. I could make an argument for 3 different scenarios given the instructions, and we decided to go conservative and use the middle strategy. However the refunded amount did not match any of the scenarios I myself calculated!
This credit is supposed to encourage poor people to work instead of living off government assistance. I would have never thought to claim the credit because I didn't think of myself as low income. On a monthly basis, I wasn't. But because of working for part of the year, on an annual basis, for that tax year, I was.
One day I got a letter from the IRS saying essentially, "Hey dummy, why didn't you claim this credit on your return? We fixed it for you. Here's a check."
The IRS doesn't want your tax dollars, they are just the mechanism by which the federal government enforces tax collection according to the law.
I've gotten refunded by the IRS for taxes they found that I overpaid years ago. Neither I nor my accountant did anything to initiate that. I'm not alone in getting an unprompted refund.
We were put in line for 40 minutes to talk to someone to validate his id. Maybe it would not have been so bad if we had not procrastinated but we managed to print out the 1040 form and the corresponding New York form and file on paper before we got to the end of the line. I think he would have struggled to fill it out on his own but I have filled out easy and hard 1040s many times and I found it easy.
no, the irs is not "avoiding code complexity" by those limits. the limits are purely chosen by intuit and irs "goals".
first, irs already have how to calculate all of your tax. period. they do that since the 50s and let you guess if you got it right.
then the limits exclude everyone who is the market for intuit, not some complex to code form. have a job were paying $200 is nothing? keep payinh intuit. have some stocks in your retirement plan? keep paying intuit. are too poor that you would rather no bother paying taxes? heres free file from the irs!
> The IRS is also exploring ways to gradually expand the scope of tax situations supported by Direct File. Over the coming years, the agency’s goal is to expand Direct File to support most common tax situations, with a particular focus on those situations that impact working families. Announcements about new state partners and expanded eligibility are expected in the coming months.
If you are single or married without a family, a 1099 contractor or just inputting in a W2 or two, and have a single form from your healthcare company, chances are this really, really helps.
The IRS isn't going to audit someone who just files a single W2 and claims maybe 1-2 deductions and a small stock portfolio appreciation.
I strongly urge you to read the fine print. The support is usually quite limited.
Some more discussion: https://news.ycombinator.com/item?id=40526225
> The Direct File pilot doesn't prepare state returns. However, if you live in Arizona, California, Massachusetts or New York, the Direct File pilot guides you to a state-supported tool you can use to prepare and file your state tax return.
> If you live in Washington state, Direct File guides you to a state site where you can apply for the Working Families Tax Credit when you file your federal return with the Direct File pilot.
"will be made permanent for the 2025 tax season with all 50 states and Washington D.C. invited to participate"
It seems very much that this is an opt-in thing, state by state. I would suspect that the results of this will be most Democratic-leaning states at least trying to opt-in for next year, and many Republican-leaning states refusing loudly during this election year, then quietly starting to opt in in a few years.
Looks like exactly half and half, Democratic/Republican to me ...
But, who knows maybe next year ...
https://taxfoundation.org/data/all/state/state-income-tax-ra...
They were in the pilot because the organization I worked for, Code for America, offered to build them one: https://codeforamerica.org/programs/tax-benefits/state-tax-f...
We reached out to other states as well, but those were the two that ended up being most impactful + most cooperative + easiest to implement :)