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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?
I like this idea, though in a qualified way. Free tax prep software is a good idea but I’d prefer to do it the way most other countries do – IRS sends you a pre-filled form which you can sign and send back, or correct if needed.
See,
https://www.propublica.org/article/filing-taxes-could-be-free-simple-hr-block-intuit-lobbying-against-it
The for-profit tax software is uniformly awful. Note I have a graduate degree in computer science and nearly fifty years work experience in IT. Software is one of the few things in life I feel I do have some understanding of.
I used to do my taxes down at the public library, which had all the tax forms and regulations handily available. Then life and taxes got more complicated..
First program I used was TaxAct, which in its early iterations had good help pages which explained what the software was up to. It got steadily worse until it was just a series of forms to be filled out, with links to the IRS documents, and no explanations. Tried TurboTax but their politics are detestable (see link above), also it made several mistakes that I caught and one that I didn’t. Tried HR Block these last three years, it has also made mistakes each year. At least the mistakes were different 😉 so our tax software is learning I guess.
My protocol is to do the taxes with the horrible software, then print out all the forms and check them against the regulations: scribble on the forms and go back to the software to correct its mistakes. Soon I’ll have to break down and get an accountant to do my taxes, as I’ve started to make mistakes too.
“Congress uses the tax code to try to achieve economic and social goals”
That is NOT the major reason taxes are so complicated. Wealthy special interests use
bribes — excuse me for not being Neanderthal Correct — campaign contributions to make the tax code complicated to hide all their sleazy loopholes.
Tax-prep firms make bribes too so taxes are so complicated most people are forced to use them.
Corporate power is THE fox in charge of the henhouse.
“Congress uses the tax code to try to achieve economic and social goals.” If you believe this, I don’t think you really understand how Congress or the tax code really works.