I lived and worked in Norway for several years, and each year I received a pre-filled tax return from the government. If I recall correctly, I had three choices:
- Send a PIN code by mobile phone which acted as a digital signature to file "as is"
- Log in to central location on the Internet and click a button to file "as is"
- Sign it and send it in.
If I needed to make adjustments, then only the third option was viable (I only had to do that once).
It literally took me less than 5 minutes to verify and send in. Fairly painless - the only pain being in the amount of taxes I paid, Norway being a socialist country, and all.
It's worth pointing out that Sweden has been doing the "simplified tax return" with all information prefilled for, IIRC, about 20 years. Internet filing is newer, but the basic method is really old.
It's really quite unfathomable to me how behind the U.S. is on these things (that and banking comes to mind). But maybe it's just the entrenched interests that are doing their damnedest to stop this from happening. It seems that here's one example when you can't argue that corporations are "adding value"; they have been making money due to the primitive IRS system and now they think they're entitled to it.
I pay my rent with check. That's the only way my landlord wants it (no cash, or any electronic way). I've seen (though rare) people paying with cash in stores (I live in LA).
We can do most corrections online now. The only major thing to complain about with the paperwork now is the taxation card describing how much of your wages should go directly to the government. Essentially, you tell the government how much you earn, then you get a card back with employment tax details which you have to give your employer. Since my employer knows how much I'm paid and the government knows how much I should be taxed, I'm basically just a paperwork delivery boy. They could just work it out among themselves in my opinion.
The reason you need to give your tax card (skattekort) to your employers is because there may be more than one of them. In the event you hold two jobs, neither of your employers knows what the other is paying you, so they don't know your total income (and therefore don't know how much tax to pull.)
I know, but it should still be enough for me to tell the guy at the accounting that "this is my primary job" and possibly "I estimate earning 500k total this year.".
Though I'll be quick to admit the tax card is not a very big problem. :)
Here in The Netherlands, downloading a data file with your data for their tax application is possible since last year. The application even encourages it. On top of that, there has also been a Linux version for the past three years :)
I Agree. My father is an accountant and hate doing taxes. He would much prefer a more simple method like this where it would be harder for errors to occur and avoid lengthy audits. He makes much less from those government audits than from other type work.
The complexity of the Tax code is also stupid. A lot of it could be simplified but that would eliminate government jobs quickly. Accountants won't care, there's a lot of lucrative work that still needs be done. In fact, most tax returns aren't done by CPA (or CA in Canada) anyway. H&R Block and others might be pissed and try to block this but they charge too much anyway.
Does the analogy work though? The fear in the rallying cry is that if musicians can't eat, they will stop making music, which means you can't have music anymore.
But if accountants can't eat, it's because there is less need for accounting, which is good for everybody except accountants.
The problem is that it is used as an axiom. It is always assumed there would be no music, but does anyone rational really believe that, or is it just music industry rhetoric? You can take the man out of the music but you can't take the music out of the man -- does anyone say something similar about accountants? (I personally think, and have experienced, that it's true about anything people are passionate about).
Requiring taxpayers to file returns without being told what the government already knows makes as much sense “as if Visa sent customers a blank piece of paper, requiring that they assemble their receipts, list their purchases — and pay a fine if they forget one,” said Joseph Bankman, a professor at the Stanford Law School.
Agree.
The problem is that the "big box accounting shops" like H&R Block, Jackson Hewett, et al. throw their weight around and complain. Paper tax returns are horribly inefficient, but that's how the big box accounting shops make the majority of their income.
Given that taxes (withheld) are essentially an interest-free loan to the government, it seems more than logical that the government could pay a "dividend" of sorts to people by simplifying the filing process without the use of some overpaid H&R Block agent, a CPA or tax lawyer.
H&R Block is worse than that: they don't make most of their income by helping people with uncomplicated returns. They make most of their income by offering "refund anticipation loans" (essentially, payday loans secured by money the recipient has already earned) to poor customers with uncomplicated returns.
The core issue isn't "the government already has this data".
The core issue is "the how-much-tax-do-you-owe algorithm is terrificly complicated". Sure X counts as income ... unless you're blind, or you've got 3 kids, or you adopted a windpower system conforming to X,Y,Z standards during the tax year (but not between 1 July and 15 Aug), etc., etc., etc.
Why is the code base so complicated?
Look to something called "public choice theory". If the tax system is really complicated and easy for politicians to modify, then they can sell modifications to the tax code to campaign donors (never listed in the clear as "Joe's Trucking pays no taxes this year", but always obscured as "a measure relating to certain income deductions for firms within 16 miles of an interstate but not more than 24 miles from a navigable body of water connecting to the Mississippi, excluding all firms that have filed for a rebate on depreciable expenses in the preceding four tax years".
As long as the tax code is monstrously complex and rapidly changing, it's a nightmare to keep a SOFTWARE code base in sync with a LEGAL code base.
I have moderately complex tax affairs here in the UK. Each year it takes about an hour.
I log on to the Revenue and Customs website, it asks me some basic questions about what I'd like to declare and then optimises the sections of the 'form' I need to fill in. So for example I don't need to declare any offshore assets so I never see that section of the form.
At the end it presents me with the entire form which I can download as a PDF for personal filing. I declare it to be true by clicking a check box and I send a cheque to the government (or in a bad year they send me a cheque).
It's all SO easy. They have a great phone line with people who answer questions honestly.
The only caveat being that you should do it well before the January deadline for personal tax as the website gets a bit slow in January.
If you want to make it even easier, set up a payee in your online banking (most banks will have either Cumbernauld or the other UK tax office - forget its name - built in) and just send it through that :-) (Or even set up a direct debit, which I believe they allow now.)
You're lucky. When I did it the site kept crashing. It was more awkward in my opinion than you seem to make out. However, from what I gather it's nothing compared to the US system.
If you read product reviews for Intuit's software on Amazon, you'll find that it's horrible and most people have to suffer through using it because they have no choice. A huge market exists for tax and accounting software, especially for small businesses, until the IRS figures out how to do it for us. eg: http://www.amazon.com/Intuit-409578-QuickBooks-2010-for/prod...
I suspect that's mostly people complaining about the actual byzantine nature of our tax code and the inherent complexity that it causes. Plus, they're in a bad mood realizing just what all that government cheese is costing them personally.
I doubt that it's actual disatisfaction with TurboTax itself. (No connection with Intuit, other than a happy user of their products for almost 2 decades now.)
For several years I didn't file on time, rather I filed for a 6 month extension. Then I would walk over to the I.R.S. office during lunch and request all my reported income. Those are the forms that I used to file at H&R Block.
This was much easier than me keeping up with all the W-2 forms that arrived in the mail at different times.
I asked the I.R.S. agent why I couldn't just use this method to file by 4/15 and he said that they don't have all the info together until about the sixth month.
I agree with the article but I think the real problem is all the deductions that people tell the I.R.S..
Ah, but, it is possible to call the national tax hotline and find out exactly how much income has been reported in connection with you via W-2s and 1099s. In fact, many people who don't keep good records have to do this every year just to find out how to start calculating their AGI.
It's a rather obscure feature, but it can be done.
I am not sure of the details. For all I know, it may involve speaking to a live person, and in so doing may be a red flag for an audit. I've just heard about it...
But this is just for things like W2s and 1099s. When the party providing you income (employer, bank, etc.) sends one to the IRS they also send a copy to you. Only idiots try to cheat the IRS by lying about what these forms say. This isn't to say it doesn't work some of them time (I forgot to report the redemption of a bond once and never heard about it, but I'm poor.) But I have a hard time believing this makes up a significant fraction of the total revenue lost to tax fraud. If people get away with it that's probably because the IRS have bigger fish to fry among all the money changing hands that isn't reported on such forms.
Anyway, this is not how law and order is supposed to work in a civilized society. You don't bait morons into breaking the law by fooling them into thinking they won't get caught. For every potential cheat who looks at this info and says "Aha! They don't know about the dividends from my Acme shares! Cha-ching!" there are probably more who will be dissuaded from cheating because they'll realize that, oh yeah, my bank sent a copy to the IRS as well. Or better yet, people will be prevented from _accidentally_ omitting income and having to go through an audit, which is a net win. (I sure as hell would have reported that bond.)
Not really - it's only easier to catch people that try to hide things that the IRS already knows. Nobody that was actually trying to cheat would ever do this if the IRS was up-front about what it knew going in.
What might happen more is that people don't correct the IRS's assumptions when they miss something and it's in their favor (accidentally or not). Whether or not this would significantly affect the bottom line, I have no idea, but I'd consider it vastly preferable to have them put more resources towards research before people are accused of cheating than to spend on enforcement after the fact.
Yep. The government showing its hand creates information asymmetry; the citizen then knows which assets and income to declare, and which ones to keep off the books.
And also, they're can use the list of "liars" as a sieve and focus their investigative efforts on those, instead of the docile, ball-playing masses.
I don't follow. You mean that right now employment for which you don't get a W-2 (like what, working without employment authorization?) might get declared anyway because you don't know if the IRS knows about it? What kind of work can you do legally without getting a W-2?
Lots of at or in home work (daycare, yard work, house cleaning, dog walking). And, for "our kind", contract programming.
In theory, there's a threshold (fairly low, like $600 maybe?) over which you are supposed to get a 1099 as a contract worker, but if you look at that list of occupations in parens above, I'd wager workers not getting 1099s outnumber those getting 1099s 4 to 1 or higher.
Coming from Denmark I can tell that you that we do get pre filled Tax papers. Often there is nothing to change.
The fraud part has nothing to do with whether they can prefill papers or not. In fact even if they do make mistakes they will often catch them a year later.
So it's in your interest to make sure the numbers are correct.
Most often they are.
Also if you think about it. The investment the IRS should invest in getting a system that makes it possible to do this would be an investment easily paid back.
Having a incremental tax system it do require you to tell your expected annual salary up front as this will affect how much you are taxed. But it's all pretty automated theses days.
Timely article as I sit here filling out my returns thinking at every step "doesn't the government already have this information somewhere? and if I were to get audited, wouldn't they just call on those same resources?"
There are probably no more than 4 things I would have to add (charitable contributions, out of country property ownership, working abroad income, etc.) to make it complete. Literally everything I'm typing in has already been submitted, withholdings, gross incoming, marital status, employer(s), stock ownership, education, medical expenses and insurance, personal property and on and on and on.
TurboTax can download my W2 from ADP (our payroll provider) and get the rest from my previous tax return. Then it submits it all via e-file
(This isn't an ad for TurboTax since I assume all the other packages also do this)
In the end I didn't have to type a single thing this year. Just click continue and a few radio buttons. Which I assume is what it's like for most people with simple returns.
Downloading the W-2 never worked for me (and I worked for the University of California, so not a small employer). I suspect the number of people that can download their W-2 is small. Same for the 1099 forms, not a very high success rate.
This would be a dream-like scenario for Germany.
Here you have to fill out all the fax forms you get sent (empty) and include copies of all receipts. This includes receipts of your payroll, earnings from bank accounts, etc. They have a new software so that you can submit your tax return online but there is nothing pre-filled unfortunately.
The South African Revenue Services implemented e-filing two years ago, with great success. Most income tax payers can file online in minutes, using information gathered from employers. IIRC, the number of tax Rands gathered rised significantly.
Obviously, fraud can be commited by omitting income generated from non-registered employers or informal employment, but as far as I know, they keep quite close tabs on people's bank accounts.
One factor that contributed to the success of the initiative, is the ease with which companies can submit their employees details, using software provided for free by SARS.
- Send a PIN code by mobile phone which acted as a digital signature to file "as is"
- Log in to central location on the Internet and click a button to file "as is"
- Sign it and send it in.
If I needed to make adjustments, then only the third option was viable (I only had to do that once).
It literally took me less than 5 minutes to verify and send in. Fairly painless - the only pain being in the amount of taxes I paid, Norway being a socialist country, and all.
The resistance from third party tax preparation companies and software providers reminds me of the Parable of the Broken Window http://en.wikipedia.org/wiki/Parable_of_the_broken_window