Local News

Why is tax filing so complicated?

Why is tax filing so complicated?

The promise of free and easy tax filing from companies like TurboTax is probably on your TV right now.

A paper authored by four economists found that 73 million Americans have taxes so simple the IRS can automatically calculate them with data He already has the file.

These “pre-populated” tax forms may prove extremely popular considering almost half of americans Frustrated by the complexity of the tax system.

The difficulties can start when you have more than one source of income: through a portfolio (such as stocks and bonds), passive income or earned income.

According to dorothy brownYour filing status can also complicate returns, says law professor at Georgetown University Law Center.

“So a different tax rate that applies when you’re head of household is a different tax rate that applies when it’s a joint. So in some of these, the tax rates are beneficial to some taxpayers.” Some tax rates are penalizing other taxpayers. So, you know, it really depends,” Brown said.

we have taxes complicated by the expense, or government spending through the Tax Code. They are benefits such as deductions or credits.

Instead of directly administering home ownership or child care programs, the government offers tax breaks such as the Child Care Tax Credit, or a deduction on your mortgage interest.

Brown says for better or worse, tax breaks exist to incentivize certain behaviors such as buying real estate, having children or driving an electric car.

Brown said, “Congress picks and chooses between individual behavior. Some they encourage, some they punish, even though they say they are not punishing.”

READ ALSO :   why do we hang stockings for christmas

Eliminating deductions may make filing easier, but it’s no easy task, as countless groups and organizations rely on tax breaks.

A CPA gave us this example: Charities receive a lot of contributions due to tax deductions and taking the credit could hurt their charity.

and if you Misfile Tax BreakYou can get penalty.

In fact, says Brown, expenses like the “Earned Income Tax Credit” are so complicated that many low-wage workers make mistakes when filing, potentially with dire consequences.

Brown said, “What Congress sees at that high error rate is that it assumes people are committing fraud. So, it has an incentive to audit Earned Income Tax Credit recipients, when the reality is that it’s the most complex part of the code.” is one of the provisions.

The IRS tax code is also really long, at over seven million words, and it gets longer every year.

That’s because the president and Congress layer provisions with new tax bills based on constantly changing revenue goals or the problems they need to solve. But those are not the only purposes of the tax system.

The system is also designed to ensure “fairness, efficiency and enforceability,” according to the non-partisan Tax Policy Center.

The result is a complex set of provisions designed to limit the revenue loss or reduce the taxpayer burden. But whether it is effective is up for debate.

Brown said, “And most Americans understand that the richest Americans aren’t paying their fair share, which is why whenever a billionaire talks about taxes, he gets booed.”

Tax scholars and politicians also argue that tax filing is complicated, as large tax preparation companies fight to keep it that way.

READ ALSO :   Exxon climate predictions were accurate decades ago. yet it sows doubt

Global Market Research Group IBIS World The US tax preparation industry is worth over $14 billion.

in 2013, ProPublica has been published. An expose on how companies like Intuit (which owns Turbo-Tax) spend millions lobbying against bills that would have allowed taxpayers to file pre-filled returns.

And last year, the FTC sued Intuit alleging deceptive marketing practices, accusing the company of tricking customers by marketing Turbo-Tax as “free” and then charging them deeply in the process because the returns Proceeded from original filing.

The company counted that it helped more than 113 million taxpayers file at no charge over the past nine years.

The IRS has partnered with several tax prep companies to provide a program called “Free File”.

It is available to the approximately 100 million Americans who earn less than $73,000 per year. But According to an IRS watchdogOnly 4% of eligible taxpayers used the service in 2021.

The future of the program is uncertain, as it is dependent on help from private companies such as Intuit and H&R Block.

Those companies used to prepare about 70% of free tax returns, but have since opted out of free file, citing “obstacles.”

Now only eight companies are left. And the Government Accountability Office says that with little incentive for those companies to stick around, taxpayers are at risk of losing their only guaranteed option to file for free.

The Latest

To Top