Businesses will still need tax assistance. But there is no reason for a person whose income comes only from a salary, interest on savings and a brokerage account to need paid help to file taxes. The IRS already has all of the numbers. They could pre-fill the forms with those numbers and just have the taxpayer approve them.
The IRS processing of the data sent to them by various reporting requirements is much more like what we'd call "eventually consistent". If you ask for a transcript of your tax account ("what does the IRS know about my tax situation?") on April 15th and again 6 months later, the second report is very likely to be complete, while the first is not nearly as likely.
So, do it anyway and let the IRS eventually send a correction (refund or bill) in the rare cases where it makes a difference. Or allow the taxpayer to make corrections if they know about them. But probably the number of errors will go down; well-intended taxpayers often copy numbers wrong, and that probably happens more often than "eventually consistent" issues.
If anything, this will compel the tax preparation software companies to get even better than before, and offer an increased value proposition.
Competition benefits the consumer, and for a long while there's been limited, mostly fixed competition (via Brand awareness mostly).
FreeTaxUSA is amazing, and cheap, but it does not yet have the brand power the incumbents do.
It's unlikely the IRS offering will be as easy to use or as pleasant as the existing offerings, but it will be a huge shot across all of their collective bows.
Keep in mind the IRS offering a free online service for tax filing does not reduce the complexities of the current tax code - nor does it make for a more fair tax system (one where having means to access professionals reduces your perceived tax liability). This system merely means fewer people need to pay $49 a year to file taxes...
Can you elaborate on that, perhaps with some substantive example?
I believe that these companies lobby to keep IRS from providing free tax prep, but I do not think that they lobby to make the tax code more complicated.
It’s my understanding that the tax code is complicated as a result of disparate efforts to increase support among voting blocks, to encourage/discourage behaviors, and to reward supporters/backers.
Knowing that the economy is only going to get larger and more complex, how is the constant lobbying to keep the system inefficient not making it more complicated?
Did you have a specific counter-argument, or just thought-termination?
This whole thing reads like insanity to me lol, I live & work as a contractor in the UK and I'm taxed directly through PAYE on earnings. Beyond that I just file my tax return through the Gov website.
The US has a long history of tax credits and deductions that people finagle to pay as close to their actual tax obligation as possible. (ie. if you do not do this, then you are quite literally paying more than your actual obligation according to the tax code).
The government isn't aware of your donations or losses, or whatever. So you have to tell them about it. Tax preparation software, historically, was designed to make this process easier by prompting you for all sorts of details you may have forgotten or were un-aware of. In essence, the software was supposed to replace a paid tax professional.
Today, most people use Standard Deduction since it was raised so high by the Trump Administration, and the need for credits and deductions has been greatly diminished. However, the need is still there for many folks, and not all tax filings are simple.
The nirvana for tax filing would be a single page online that disputes any facts the IRS already knows (such as informing them about donations or the like). But, our tax code itself needs to be vastly reformed and simplified before that can become a reality.
I don't think you are actually disagreeing - the GP was saying that if they can't differentiate themselves enough to make consumers choose to pay, then no real loss.
This is overly optimistic. Intuit is the leader in this space, and they haven't produced a compelling new feature in decades. They have spent far more of their energy fighting the government to maintain their status quo than doing anything material for their customers. They even have gone as far as to lie to their customers about their eligibility for free filing just to skim a little bit off the top of the lowest earners. Even in the presence of competition, the barrier to entry is so high that Intuit has maintained a virtual monopoly on home tax preparation. They will fight to uphold/regain that before they ever fight for you.
Yes, there are alternatives, but what possible enhancement could any of them provide that is worth anything? Tax preparation is largely deterministic, and maximizing deductions is a largely human-lead task that is only beneficial to higher earners who have an accountant that does their taxes for them and don't care about services like TurboTax and FreeTaxUSA.
For most working class Americans a guaranteed free solution provided by the IRS itself is a no-brainer. You know that the government isn't in the business of maximizing profits at all costs, and you get the peace of mind that the IRS itself calculated your taxes, and that you are unlikely to get the blame if there is an error.
Tax collection is a critical function that the government relies on, it should overwhelmingly be a government-lead process that doesn't cost people any more than what they owe in taxes. I hope all of these predatory tax filing businesses go under, because paying taxes is a civic duty that people shouldn't be reliant on private organizations to fulfill for them.
FreeTaxUSA is the one I use and recommend to everyone else.
Though, I also do my taxes on TurboTax to double check my work (I don't submit until both programs report the same amounts to the penny). I just don't submit using TurboTax.
> nor does it make for a more fair tax system (one where having means to access professionals reduces your perceived tax liability)
It's not that deep, man. Not everything in life has to be an all-or-nothing scenario. This is a big win for a solid percentage of Americans who have a relatively straight forward tax situation.
Tax fairness, IRS tyranny, bought-out politicians, corporatism -- let's leave that for another day.
Let's learn to celebrate wins no matter how small.
>If anything, this will compel the tax preparation software companies to get even better than before...
This implies that the state of tax preparation software is "good", which really doesn't line up with overall consumer sentiment. Personally, I hardly consider clunky UI/UXs loaded with dark patterns to be anything but good.
I agree and they already do to some extent. I could easily do my own taxes. I pay for a service because they take on liability when it comes to my tax return being correct. If they screw up, and they have, they fix it. That is worth 50-100 dollars to me...
People focus on the insurance side of health care in the US - but that ignores the reasons the system is so broken (Medicare + Pharmaceutical Companies).
Just as in tech we build things that will get refactored and thrown away, it should be expected certain private sector components might be eventually deprecated when government steps in to provide as a public good.
> it should be expected certain private sector components might be eventually deprecated when government steps in to provide as a public good
I support many public goods, including this one, but they are a tool with appropriate uses just like private enterprise is. I don't want operating systems to be a government-provided 'public good'. Also, I think freedom is the core, but not only, value here, including in commerce. When government takes over, it's no longer a free market with free people.
I don't think governmental functions like tax collection should be subject to the free market. Where does this end? Do we end up with private militias that compete with municipal police departments? Do we end up with private militaries that compete with the US military? Do we end up with private court systems that compete with the DoJ?
Some things should not be privatized. The government allowing corporations to profit off of a civic duty like taxation, while offering no free public alternative, just anoints a handful of corporations with the gift of extracting profit from a mandatory governmental process. You should not be required to understand the intricacies of tax code, or pay for someone who does, just to file your taxes as required by law.
If a criminal has the right to be provided a public defender, then every American with an income should have the right to be provided with public tax preparation service from the same government that mandated tax collection in the first place.
> I don't want operating systems to be a government-provided 'public good'.
Huh. Interesting example. I actually do want to see a government produced public good operating system.
Where we're going, operating systems will either be ad filled messes or locked down walled gardens. A public good option would be required to meet high bars for interoperability while also not ad funded.
It's one thing to regulate away a market (make things illegal) and a very different situation if the government is just setting a bar for quality within a market.
Funny you bring that up, because 27% of all US Government systems run Linux. The problem is that the government doesn't give back any money, or contribute much code to the FOSS projects that they rely on. If they gave back proportionally like Linux Foundation Platinum sponsors do, they would get a return on their investment just in that they run enough Linux to benefit from contributing.
China has given money to FOSS projects far more than the US does, and there is an official Chinese Linux distro available to Chinese users. Nobody is forced to use it, outside of Chinese government employees on their work machines, but like a library, it is something of value that the state can provide to those who might need it.
If an industry exists because of the government and it can be replaced by a public service, then it doesn't deserve to exist.
FWIW, public defenders are a public service used to interact with a government-created system, but the private legal defense industry is alive and well. So, it's not like making a public service is sufficient to kill any government-created industry.
> If an industry exists because of the government and it can be replaced by a public service, then it doesn't deserve to exist.
It's a start, but I'd need to think of examples. I'd say if the government creates inefficiencies, such as for basic tax filing, it should remove them if possible regardless of the effect on businesses profiting from them.
Off the top if my head, there could be cases where government makes a change that shifts the demand from one industry to another (that donates more to politicians).
> I'd say if the government creates inefficiencies, such as for basic tax filing, it should remove them if possible
The complexity of the US tax code is certainly inefficient from the perspective of someone trying to get through their taxes, but many economists would argue that it enables a very economically efficient way to soft-enforce policy and influence behavior without resorting to regulation and law enforcement.
Whether the economic efficiency outweighs the bureaucratic inefficiency... I'm not sure. I guess that's where public tax software comes in.
Most of the inefficiency comes from the implementation rather than the policy, and the use of an income tax rather than a consumption tax.
If you had a national VAT instead of a national income tax and the government wanted to subsidize e.g. solar panels, they would simply exempt solar panels from VAT and individuals wouldn't have to file anything, they would just pay less for solar panels because the seller wouldn't have to collect VAT.
The system we have now is unnecessarily complicated because the subsidy is essentially always for something you buy, but then you have to go and file paperwork to deduct it from your income tax. On top of that, then penalties have to work differently -- if you want to impose a penalty on cigarettes then you can't just change the amount of the existing VAT on that product, you need a whole new tax with a duplicative collections infrastructure.
The justification for this is nominally progressive taxation, but you could get a progressive effective rate curve just by giving everyone a fixed "standard refund" (i.e. a UBI) against an otherwise flat rate consumption tax.
Everything you're saying sounds great, but afaict VAT doesn't have the power to rework a society the way income tax does:
* Marriage is incentivized via the advantageous married-filing-jointly option.
* Donations are deductible.
* Employers are incentivized to replace part of wages with benefits packages including health insurance, which incentivizes people to not be unemployed.
(I'm not saying any of this is a good thing, especially that last one :)
> Marriage is incentivized via the advantageous married-filing-jointly option.
For 99% of people the 2023 brackets for married filing jointly are just double the ones for being single, and actually penalize two-income married couples in higher income brackets. Moreover, this wouldn't even do anything in a system with a flat marginal tax rate.
But if you actually wanted some marriage bonus you could increase the amount of the UBI for married couples.
> Donations are deductible.
So you don't charge VAT for donations or let the charity buy things without paying it.
> Employers are incentivized to replace part of wages with benefits packages including health insurance, which incentivizes people to not be unemployed.
This is definitely not a good thing and should be burned to the ground. But you could get the same effect if you wanted it by not charging VAT when e.g. employers pay for healthcare.
The better solution would, of course, be to not charge VAT when anyone pays for healthcare.
I agreed with everything the parent said, but to deal with the points you're implicitly raising: just send people checks instead of offering tax credits.
Do X? Get Y!
instead of:
Do X? Fill out 3 forms, cross-reference to 2 others, be eligible for a tax credit if you earned enough, file ....
Ehh I can see GP's point though, 'can' comprises public opinion, taxpayer money; you can (try to) nationalise internet service provision say, wiping out ISPs, but it'll be a political issue and need support.
The point is that there is nothing you couldn't subsidize with tax revenue and thereby destroy the unsubsidized industry, so it doesn't serve as a useful test. You could have the government provide everyone with unlimited free coal and that would be the end of the private coal mining industry, but that doesn't mean we should do that.
The reason public tax filing software makes sense is that the government imposes this cost on the public so the government should collect the money to pay for it in the usual way (i.e. from taxes paid in proportion to ability to pay) instead of imposing a fixed fee on everyone.
Enriching oneself at the cost of others really seems like the business modus operandi in the USA these days. It is a win, although only a beginning of what should come.
Will the IRS version also do my state taxes? Can it "slurp" in the statements from my brokerage accounts? Can it do rental income? I have no love for Intuit and all the rest, but even with the constant up-selling and the other BS you have to put up with, it does help me tremendously with what would otherwise be a complicated task that I dread doing every year.
> If an entire industry can be killed by a public service, it probably didn't deserve to exist in the first place.
It was created by a public service. It would be better if they'd just made a rule that those with super simple tax affairs just didn't need to file, as we have in the UK. But there's probably no pork in just making things better.
The Tory government introduced this filing BS in Britain a while back. You never used to have to file anything with the Inland Revenue before the Tories.
Can you cite this? I thought you just have to file if you make over a certain amount, or you have a setup that requires filing (e.g. you rent part of your house out, or you're a sole trader).
That and also it's not so useful if it can't import from bitcoin.tax and TurboTax exports, since there's so much in tax prep that depends on numbers from the year before, and ultimately the value of tax prep software to me is roughly the time I spend on tax prep vs. what I could get in terms of hourly rate as a hypothetical software consultant outside my day job.
If I have to manually input 5 billion crypto and stock transactions including every damn weekly staking reward just to pay taxes it's just bleh.
NM state tax filing online is an absolute gem of web-based government interaction. The last 3 years, my state tax filing (I'm self employed) have taken less than 5 minutes each time.
It might suck initially, but that doesn't mean a lot. Healthcare.gov works pretty well today (not perfect but gets the job done for most people), despite the shoddy rollout.
How will I know the software is properly optimizing my deductions without a 30 second animated progress bar with the words "Optimizing Deductions" flashing on screen, while also advertising to me that I could be leaving savings on the table unless I upgrade to the TurboTax Pro Ultimate package for no up-front cost*
* cost of TurboTax Pro Ultimate will be deducted from your refund amount, plus interest.
Generally speaking, if you are in a position where deductions and credits matter (ie. not standard deduction), you really aught to seek a professional to review your filing before submission, or at a minimum use two different softwares to compute your taxes and look for any disagreement (in theory, they should have the same output).
Either way, the $49 to use the software is trivial (under this situation) and often is only paid if you use that software to submit your taxes (meaning you can "get a second opinion" for free).
The model is that someone with a W-2 and a 1099 or two and just taking the standard deduction should be "Yep, looks OK." If it gets more complicated than that you probably need to either spend a bunch of your own time or hire a professional.
* deducting turbo tax fees from your refund amount incurs a 59.95 convenience fee (hopefully they don't do this anymore. They did it to me a few years ago and wouldn't refund the charge when I didn't notice and called to cancel it).
Also, my wife paid a joint filing online under my SSN, and the system couldn't figure that out
It's not surprising the system couldn't figure that out. There is no such thing as a joint-filing under a single SSN. You need to include both spouse's SSNs or ITINs on the 1040 to file jointly, and the return is treated as a "joint" return (meaning, equally by both spouses).
We did include both, but we either had to make an account under one of our names, or the check had a name that didn't match on another spot (it was quite a while ago). Despite the IRS having our filing records, they couldn't match it to the payment. It's really not a hard problem.
The check doesn't have to match either name, since names are not what the IRS uses to match payments to returns. The check simply has to have the SSN (or ITIN) of at least one of the joint filers.
It's really not a hard problem.
It's actually an extremely hard problem if you try to match payments by name, since there are a lot of people with the same exact name, many of whom even live in the same state or same city. Most checks don't include an address, and even those that do don't always match the address the taxpayer gave on the return.
It sounds like you failed to include your SSN on the check, which means this problem was one of your own making. That being said, if you could provide proof that payment was timely sent and the check details (check #, account, etc.), the IRS can match the payment received and will void penalties and interest that were assessed.
They weren't. The account had the SSN. The payment came under the other SSN. The filing was joint with both of our SSNs through the accountant. The agent I finally got on the phone after days confirmed that the problem was some mismatch between SSNs in the account, check, or filing.
Of course it was cleared up, but the point is that at least one of our SSNs was on everything. That should be a trivially easy for record merging or linking.
A lot of these services offer a “if we can find a better refund, pay us; if not, no charge”.
That model could still exist and if you are right, these business will still continue to be useful.
I would not go that far, but it is hard not to notice how bad the main competitors in that space have gotten. They are using just about every single dark pattern they can possibly get away with. Some competition from a public service may be warranted in this case.
Why do you think this? NYC, which spends extraordinary amounts of money on the NYPD, still only spends 10% of its budget on public safety[1]. The 4 largest categories are education (20%), transportation (15%), environmental protection (15%), and housing and economic development (15%).
That seems like an overly broad statement. If the companies producing tax filing software were solving a problem for their users then why shouldn't they exist. Even with this new option being offered by the IRS there is still likely room for private companies to solve the same problem (tax filing) in a way which is perceived as better by some users and so still justify their existence.
>If the companies producing tax filing software were solving a problem for their users then why shouldn't they exist
Because the "problem" they're solving has been solved in other countries without a profitable middleman. Intuit's continued existence in this space is dependent on their lobbying team.
That's a slightly different issue though. Just saying that because the government has offered a solution to the problem of filing taxes doesn't automatically imply that no other organizations that are solving the same problem deserve to exist.
I suppose if you are arguing that the one and only reason that tax preparation software is needed is because of Intuit's lobbying then that could be true, but Intuit's lobbying is only part of what has led to a complex tax code.
Yes, the one and only reason tax preparation software is needed for normal people with normal incomes and expenses in 2023 is because of Intuit's lobbying. That's why people are upset about it.
Completely agree that fixing the government is the real solution, but until that is done, why shouldn't private companies be able to produce (optional) tools that make filing easier?
The problem's continued existence was one they were largely responsible for. It's a bit like saying someone who prevents the installation of trash bins then offers to pick up litter for money is providing a valuable service.
