Fox in the Henhouse

Marjorie Kondrack

ALBERT EINSTEIN reportedly once said, “The hardest thing in the world to understand is income taxes.” Which makes me wonder: How did I end up wandering into this mind-boggling field? 

I like knowing how my money gets taxed because it helps me better control our finances. By managing taxes, we can significantly boost how much money we have for retirement.

Why is the tax system so complicated? The system is trying to do more than just collect taxes. Congress uses the tax code to try to achieve economic and social goals, and then relies on an overburdened IRS to deliver on those plans. It would be far better for the IRS to concentrate its efforts on collecting revenue—its primary purpose—and let other federal agencies monitor social policies.

The U.S. tax code is a master class in complexity. If you prepare your own return, you need a lot of patience and usually find yourself reading the instructions more than once. Today’s tax laws unnecessarily burden America’s taxpayers and make voluntary tax compliance far too difficult.

The two top dogs in tax-preparation software are TurboTax and H&R Block. I’ve also had good results with FreeTaxUSA. It supports most tax situations and forms, without incessant handholding. It charges if you want live help, and also for state tax returns.

Now, the IRS wants to get in on the action. Its new Direct File pilot program, a free tax-filing program, is currently available in 12 states. The program doesn’t prepare state returns, nor can you use it if you itemize deductions, have more than $1,500 in interest income or claim certain tax credits. In other words, as currently designed, it’s only meant for people with simple tax situations.

The thinking is that, if the pilot plan is successful, it’ll be expanded to handle more complicated returns. Some folks like the idea of IRS Direct File. Others feel it’s like putting the fox in charge of the henhouse, and that private industry is doing a fine job of providing free and low-cost tax filing.

What’s your opinion?

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