The NTA (National Tax Authority, cited as the Kokuzeicho in the article) doesn't figure out your taxes for you. Your employer does, as one of the (many!) ways in which they exercise paternalistic control of your life. If you do not have an employer, you get to go through a process which is almost exactly as fun as it is in the US, modulo a modestly competent online filing application.
I spent $3k this year on accountant time to file my personal taxes. The majority of the cost is driven by my various extracurricular activities. In the five years where I did my own taxes as a self-employed person, I generally lost between 2 and 5 working days a year to the effort, largely driven by the "calculate the income and expenses of your self-employed business" part of the return.
A Japanese corporation with one employee is in for about ~$5k a year of professional services fees incident to managing payroll for that single employee, not counting the taxes themselves. (I personally can't wait until this space gets Gusto-ed here, and SmartHr and other companies are starting to get there.)
In the U.K. If you are employed, your tax is worked out for your through the Pay as You Earn system. If you are self employed you fill in the rather good self-assessment form online and your tax is calculated for you.
The UK web-based procedure for self-employed tax return is very easy to use.
I did it for years with no need for an accountant, despite my business was complicated by special circumstances (non-UK customers, tax-exempt research funds, etc).
The one year I was in credit, they wired me the money within days.
They are currently doing a big redesign for self employment. Basically moving from a yearly overview of accounts to an on-demand system - where you pay taxes as they are charged. I hope they don't force people to use the new method.
If you have to file UK tax from outside the UK, then you have to do it on paper or use commercial software, but it costs from about $30 a year, so no big deal.
yeah I was not too convinced when I read the article. The government can easily figure out the taxes for your wage (which your employer did actually figure out) but they can't figure out the taxes on your real estate revenue, and maybe other activities (traded cryptocurrency? freelanced on the side? Airbnb"ing" some of your estate)
I am not able to find a citation for this, but I would be surprised if more than a small fraction of Americans had significant non-wage, non-financial institution investment income to report. A solution doesn't have to solve a problem for everyone to be useful.
That's just income. There is also the issue of deductions and credits, which covers many more people. The income portion of my taxes takes me about 5 minutes. Most of my time is spent on the deductions and credits portion.
For most people, taxes are not as complicated as they are made out to be. If you can file a 1040EZ you can fill out the form in 10 minutes. If you have a "normal" return with mortgage interest it's still not that difficult.
Most people are just afraid of making mistakes (it's not a big deal if you do, you'll get a notice and you file an amended return). Or maybe they just feel their time is too valuable to spend an afternoon filling out forms. But most individual tax returns are really not that complicated.
Making sense out of the ambiguously-worded instructions has always been the complicated part for me. I have always found this to be infuriatingly stressful, so I hire professionals to deal with it.
The trick is to not try to infer anything that is not there. The instructions are dumbed down to the point they actually are hard to understand. Just do literally what they say and don't think about whether it makes any sense.
I would be willing to bet good money only a tiny percentage of people have income outside their employment. People who have real estate or bitcoin profits could always file an andendum.
You would lose that bet. 12 million Americans filed a Schedule D with $5k+ in capital gains in the last year the IRS has stats on. (That's 1 out of every 8 returns.)
So you have a good start, one which is enough for the vast majority of people. Those that do have those things have to do a little extra work. I'm not seeing an argument against doing this.
There are two simpler IRS forms (1040EZ and 1040A) for people with simpler tax situations which are used by something like 40% of filers. People with simple tax situations really just need to transfer a few numbers to a form and send it in. I guess the process could be even simpler but it's already pretty straightforward if your income streams and deductions are simple.
As another data point, I also pay $2k - $3k / year for help to file taxes in Japan. But I also know many people who just do it themselves.
My justifications for paying:
- We've done the return ourselves once, but it was stressful to worry about not completely understanding everything and making some expensive mistake.
- Service in English.
- If tax officials ever wanted to ask me something, they would get responses in Japanese from a person who actually knows what they are talking about.
- Nice for making sure I get every deduction.
- Probably just doing the "blue form" return is already worth the expense because of deduction benefits. I probably wouldn't ever get around to figuring out how to do that.
The process in Japan seems reasonable, but seems to me more convoluted than in Finland. I was particularly surprised how you have to pay many different fees which in Finland would have been bundled together. Namely having separate bills coming on varying payment schedules for income tax, municipal tax, entrepreneur tax (5%) and health insurance. This seems inefficient and confusing to me.
> I was particularly surprised how you have to pay many different fees which in Finland would have been bundled together. Namely having separate bills coming on varying payment schedules for income tax, municipal tax, entrepreneur tax (5%) and health insurance. This seems inefficient and confusing to me.
That's how it is in most countries because they're all different entities collecting.
> That's how it is in most countries because they're all different entities collecting.
Exactly. I pay city, state, and federal income tax in the US. My city is about 1.5 times the population of Finland, and that's only one of the three different forms of income tax I have to pay. At least that goes through the state, so it's only two departments, but that's again separate from the federal IRS. And that's just income tax, not other taxes I have to account for and pay as well.
The reason it's more complicated in countries like the US, Japan, India, etc. is because they're much, much larger, which requires more complexity to manage - both the size of the government itself and the revenue-collecting departments that need to support it.
If I only had to pay taxes to my city's revenue department and there were no state or federal tax in the US, I can guarantee that the process would be a lot smoother for me as well.
In Poland municipal, state and federal income taxes are paid as a single entry on the tax form. The government then transfers the money to the appropriate lower level of authorities.
So I wouldn't say that most countries differentiate like in the states.
As an additional data point: provincial income taxes in Canada are collected along with federal income taxes by Revenue Canada and then remitted down to the provinces. The sole exception to this being Quebec.
Definitely a peculiarity of the US system being less cohesive than some other countries - and also dealing with far more people and jurisdictions.
Also, I don't think that the size of the country (I think you mean the population, Finland has larger area than Japan), but the amount of bureaucracy given state likes and population is able to handle.
Actually the more population the harder it is keep the different taxes, it would be easier to have a single one and distribute it accordingly from the top.
Side note... when you say your city is 1.5 times the population of Finland, are you referring to the only city in the US with a larger population than Finland?
I pay very close to that for our US taxes. We have to file 5 federal returns and one state return: an MFJ 1040 with supporting schedules (A, C, and D primarily), 2 kiddie returns, 2 gift tax returns, and a state return. Throughout the year, we file quarterly estimated taxes and 4868s.
Our total filing packet runs to nearly 100 pages and our annual bill is between $1800 and $2500, depending on the exact complexity, whether we have any amended filings to make, etc.
I DIY'd my taxes for many years, and once the kids came and brought the additional complexity (some of which is cyclic), I tried a professional one year. Literally in the first year, he looked over my prior DIY'd returns [that I was certain I'd done correctly] and found an error in one year where I'd overpaid $29K by miscalculating the basis of some employee RSUs and it was still within the statute of limitations where I could amend that year. He saved me 10 years' worth of his fees before he'd filed my first full year of taxes.
He didn't say arithmetic error, he said miscalculated basis. Very different.
Here's how it happens to lots of people.
1. Vest RSUs worth $25k-500k, depending on how senior you are and what BigCo you work for
2. Employer sells 40% of your shares instantly upon vesting, for taxes
3. Employer remits that 40% to the government
4. You sell all your shares, because you realize concentrating your risk of investment loss with the risk of unemployment is a bad idea. Basis should be approximately 60% of that year's vesting
5. Employer correctly reports the full pre-tax vested RSU value as income on your W2
6. Broker, for incredibly Byzantine and unfortunate legal reasons, reports basis of vested-then-sold stock as zero
If you miss step 6. when filing your taxes and just naively enter the numbers your broker gives you in your tax forms, you will be double taxed, capital gains on the full value of your sale, instead of ~$0 gain for your vested-then-sold stock. Your employer already covered that income on your W2.
So, sokoloff may have just inappropriately paid capital gains on a $300k vest. Sizable, but fairly normal for a high performing senior engineer or manager at a BigCo.
Alternatively, the same logic applies (and it's even easier to screw up) if you held on to your shares from multiple years of vesting, and sold them all at once, so the original grants may have been smaller. If they appreciated, you owe tax on the adjusted basis, not the zero basis reported by the broker.
Side note: you need to check this particular failure even if you take your return to a place like H&R Block. H&R Block specifically has repeatedly screwed this up for many different coworkers of mine. And then they didn't help with the necessary amended return. Stear clear of H&R Block.
That's exactly the mechanism of my error, although I seem to recall the amount in question was more like $125-150K of basis miscalculated. (I crisply recall that it was a $29K refund from the amendment.) That did represent multiple years of vested RSUs which I sold all in one year to make the downpayment on our house; some of them I had filed as short-term gains, others as long-term gains, all against a $0 basis.
A $29K error would be over $200K of pre-tax RSUs. I had to work it out in Sheets to be sure as the number was higher than I thought (and definitely in the ballpark of your figure, so this is a "you're right" reply not a "no, but" reply.
I assumed in Sheets (arbitrarily) one grant, 10% CAGR on share price, annual vesting, and selling the whole grant in year 4 (so years 1-3 growth are LTCG and year 4 is no growth after vest).
Well it could be that my accountants just totally lucked out and presented a proposal to someone whose motto is Charge More For Professional Services, but it's mostly "I have a number of factors which make writing my tax return complicated", many alluded to here: https://news.ycombinator.com/item?id=10810367
I paid just shy of $3k for tax prep last year. The package of information that I sent to the IRS was more than 50 pages of documentation. I joke with friends that you'd think I was an international oil baron but in my mind I'm a pretty regular person.
Judging from Patio11's writing I would guess that his situation is similar to mine (though he seems more confident in grocking IRS rules and doing his own accounting and taxation than me). Here are a few of the complicating factors that make me want to pay to make the problem go away instead of reading IRS documentation for literal weeks to learn how to do it properly:
* Income in two countries.
* Tax treaty between those two countries.
* RSUs from two companies.
* Options from one company.
* Difference between what stock events are taxable in the two countries.
* 401k and similar account in other country.
* Vanguard ETFs with some sells for loss harvesting purposes.
* Running a company into which I've put some personal cash.
I did my taxes myself using Turbo Tax for around $60/year for years. Until suddenly I didn't and started paying what seems like a lot of money. Once you leave W-2 land, things get complicated more quickly that seems reasonable.
I paid $2k for US/UK taxes when I moved to London. I had always done it myself up to that point, including freelance Schedule C work, I definitely knew my way around the US tax code.
But then I move to the UK which has a different tax year, with a lot of subtleties over where my money was physically located, and what kind of expenses I could claim, and it got crazy complicated crazy fast. Paying $2k probably saved me $10k/year.
I'm with you here. I never spent more than $600 having a few W2s, some 1099s, the usual interest-bearing accounts, a C corp and a schedule C.
Granted, I could have spent a LOT more if I didn't keep track of everything (i.e. needing a bookkeeping service too). Maybe that's where the additional expense came in.
1120S? $1500 is a reasonable price once you accept the world of asinine information returns costing this much to prepare and file.
For a simple schedule C, $200 is suspiciously cheap but I hear this all the time, even from people with rental property and I'm like - ok whatever good luck with that. If you go to H&R Block for a simple schedule C, of course they do the whole return and it's a charge per return. I think it's about $500-$600 for a 1040 that also includes A, B, C, D, E and SE, last time I had it done. These days I'm just using TurboTax with numbers plugged in from accounting software.
Wouldn't American employers also be spending a fair bit of money figuring out taxes for their employees prior to handing off the data and money to the IRS? And wouldn't financial institutions be doing something similar for their clients?
The systems described by the article seem to be using the data submitted by employers and financial institutions to generate a tax return, which the tax payer verifies or adds to (in the case of self-reported income). For the majority, filing taxes would either be a simple confirmation that the government has complete data or vastly simplified because a great deal of the work has already been done for them.
American employers only have to do withholding, which is extremely easy to calculate. Employees submit a W-4 listing the number of exemptions and any additional withholding. They plug it into a simple formula to calculate your withholding.
The withholding is not a calculation of actual taxes owed. E.g. it doesn't even have a way to account for spousal income for married couples.
Some places I've worked allow the withholding to be a bit more accurate by specifying conditions like spousal income. The end goal is to make the refund as small as possible.
Not really. I don't have first hand experience but my understanding is that if you're employed as a salaryman in Japan then your employer will file your taxes for you. That is very different from your employer sending a form saying how much they paid you and what was already deducted for taxes.
I don't know how it's in Japan but in Austria neither the company nor the employee file taxes. There is a general tax withholding that you do as an employer for your employees but the taxes are filed automatically by the state.
You can then retroactively go in and modify that by doing a "Arbeitnehmerveranlagung" where you can claim modifications to your automatic tax filings.
This is a different process for when you are self employed and you actually file taxes from "scratch" which however is also a significantly simplified process.
This is effectively not very different than how it works for most people in the US. Yhe employer sends the government forms and funds for your estimated taxes, and at the end of the year the taxpayer files a return and gets a refund based on varying deductions.
How do you think the IRS checks your return? They already have everything they need for the vast majority of people (which includes tax payers, those who don't need to pay tax, those who don't need to even file, etc).
People with various sorts of cash businesses that don't appear at any of the classic touch points are few and far between, and probably don't report anyway.
And for the remaining people who, say, want to record an expense to offset a capital gain (like a remodel that increases the sale price of their home): they have an incentive to let the tax authorities know, since it reduces taxes. I doubt many people would do this more than once or twice in their lives unless they ran a real estate business.
Since the sale of your primary residence rarely involves capital gain tax liability anymore, there's not even that much incentive to keep track of improvement expenses.
Not in Japan but live in India which follows essentially a similar system. In India at least, the short answer is the employer doesn't.
However, every financial institution that deals with you deducts and prepays some taxes on your behalf and also reports the income. So at the end of the year, it shows up in a report which shows tax deposited and you just have to fill in the sum of that income as "other income". This system is good enough that if you are a salaried person with some investments and some tax deductibles like housing loan, tax filing takes about an hour and also normally doesn't have any surprise element of "you owe the taxman X"
It becomes complex only for business owners which is a small minority of the population of any country.
Japanese securities companies have special accounts which automatically report tax-related information to the tax agency and withdraw taxes appropriately. So you'd be able to do standard stock and currency trading without being required to file a return. It's quite nice being able to work at a company and participate in the market, and still not have to worry about filing.
Doing rarer activities such as investing in startups brings you into return-filing territory though, but I guess that's unavoidable since it's private investing, and not a concern for most people. Reading many comments on this post, it's clear hackers generally aren't "most people" ;)
Overlooked in this article and comments is the influence of one man -- Grover Norquist.
He runs an extremely influential organization that administers a sort of purity pledge that, for most Republican candidates for Congress, is necessary to sign in order to avoid being primaried.
He has decided that making taxes easier to do would make people more okay with tax increases, and so he has decreed that support for the kind of systems other countries use is a violation of this pledge. His excuse is that such a system would effectively slightly increase taxation by preventing people from getting away with taking erroneous deductions. This excuse is obvious, total bullshit.
Grover Norquist wants taxes to be painful because he wants people to dislike government and the concept of taxation in general. Thus, Republicans in Congress must take the same opinion or risk having their purity stamp revoked. Thus, no reforms get passed.
Perhaps this is one area Trump can do some good; certainly he's much less beholden to the traditions that bind the old guard (for better or for worse).
There's good evidence for this. That was part of the reason the Feds pushed employers to do withholding "on our behalf" during the 1930s. Prior to that, taxes were filed quarterly and then only a small % of people. But people actually saw how much they paid.
Withholding was a clever and subtle way for us to never see part of our paycheck so then any tax return we get feels like a bonus when it was actually just an interest free loan to the government.
Another way to look at it.. people here talk about $Xk that they make but it's always pre-tax. Ask the same people what they make post-tax and I'd wager less than a quarter can answer it accurately.
The destruction of the tax prep industry in the US would make me so happy that it would overshadow any negative feelings I might have about my tax payments being more transparent to me.
The numbers quoted in the article are insane. Over $10 billion that could be spent on actual useful economic output, wasted. Hours and hours of individuals' time, wasted. It's disgusting.
In some ways I find the preservation of the tax prep industry to be even worse than Trump's recent attempts to protect/resurrect coal industry jobs.
You realize it's much worse than that right? Because $10 billion is just the direct cost of those firms, not the opportunity cost or the social cost, nor even the manhours and software cost. The six-billion man-hours alone I'd value at a ballback of $120 billion; though this is hard to truly estimate. Given that many figures simply assigned zero value time not spent working (and that's clearly nonsense), and that somebody earnign $20 is hopefully worth more; that sounds conservative to me.
Complex tax systems also encourage simply avoiding engaging in anything that would make tax burdens more difficult to figure; they cause stress (a public health issue that's still consistently ignored); and they encourage cooking the books to make life simpler - which in turn is an enabler for fraud.
The real-world cost of US tax complexity is likely at a bare minimum 100 billion dollars; possibly as much as 10 that; and that's excluding factors that are excluded from GDP; i.e. the value of things like lifestyle/stress but also more economic-oriented factors such as reduced economic agility.
One interesting, and somewhat ironic, historical footnote to this, is that Milton Friedman was part of the group that conceived of and implemented employer withholding as we know it while he was working at the Treasury department. Though by his account it was introduced during WWII and not in the 1930s.
You're right, income tax withholding wasn't implemented until 1943. Social Security withholding was introduced in 1935. I was probably combining the two.
>Ask the same people what they make post-tax and I'd wager less than a quarter can answer it accurately.
just sad. so many people skip basic budgeting..
How can one not know what they make post-tax, at least well enough to not be off by a few dollars? That is, after all, what one has to actually pay bills with. I know what my net earnings after taxes, retirement, etc. are to the nearest dollar, every paycheck. When I was substantially poorer (in academia, and prior to that school) I knew down to the penny (as a function of hours worked, even, when I worked hourly pay jobs).
> How can one not know what they make post-tax, at least well enough to not be off by a few dollars? That is, after all, what one has to actually pay bills with.
In my case, because I spend significantly less than I make, so I don't really need to think about my monthly bills. Yes, that's an incredible luxury, and yes I have friends and family for whom even a few tens of dollars of unexpected expense at the wrong time can mean disaster (and yes, I help them out).
Like you, when I made minimum wage I knew my after-withholding figure. But now? I honestly don't know.
> How can one not know what they make post-tax, at least well enough to not be off by a few dollars?
In the US, I guess you can look at how much salary appeared in your bank account, and multiply it by 12, to get the yearly salary.
In European countries, there are holiday bonuses and in some countries a 13th month salary, so the yearly income is something between 12.5 to 13.5 times the monthly pay.
I think the allusion was to what their all-in tax rate is. Everyone knows what their take home paycheck is, but ask the same person what their effective tax rate was for the year, and most people don't have a clue (over withholding, 401k deduction, mortgage interest deduction, state and property tax deductions, phase outs etc)
I think the point is they don't want Americans doing the math of taking their gross earnings and subtracting a percentage of it and being reminded of the specific percentage of tax paid and gross taxation every quarter. Taking it from each paycheck quietly is a softer blow than all at once.
It would be fascinating to change Tax Day from April 15th to the first Monday after the Federal election in November.
I'm not willing to predict the results but it would cause some interesting debates.. imagine everyone being in the middle of their taxes when they cast their votes.
For most Brits, most of the time they're one and the same - the taxman will tell your employer your tax code (= your tax free amount) and it's usually the same offset from standard each year. From this thread it appears that American taxes have more complicated rules.
Norquist started Americans for Tax Reform (ATR) is a politically conservative U.S. taxpayer advocacy group whose stated goal is "a system in which taxes are simpler, flatter, more visible, and lower than they are today."
There's plenty of sources. For example, Planet Money, episode 760, where we hear a story of how a program to make filing easier and less error prone, without changing the tax code in any way, is axed when Norquist starts to pressure republicans.
I for one find the grandparent's explanation of the organization to be quite accurate. My guess is that you aren't getting the subtext: His main goal is, in practice, to lower taxes for those with high incomes, and the rest of that group's stated goal is just mandatory steps to make it possible to pass that.
The visibility factor is huge, just because without it, his movement would not have legs: The more visible, the more likely it is for people to dislike taxes, whether they are getting a lot out of them or not. Making all taxes lower is also key to sell that goal too, as flattening the system while maintaining revenue would mean a tax increase for a large majority of Americans, which is also a non-starter.
Once you get those real, non-stated goals, then the stated goals make perfect sense, as they align 100% with what one would need to do to get the real goals achieved in practice.
> In 2005, Norquist testified before the President's Advisory Panel on Federal Tax Reform arguing against return-free filing. The next year, Norquist and others wrote in a letter to President Bush that getting an official-looking "bill" from the IRS could be "extremely intimidating, particularly for seniors, low-income and non-English speaking citizens."
it's a matter of perspective . making taxes more invisible to some people, myself included, makes them easier to raise.
so, the argument would be to first make taxes more painful. the best would be to remove auto withholding. if the average $50k a year family had to write a check for $3k to the government every 3 mouths they'd likely push much harder for lower taxes. less taxes means less money for government which would seem to mean smaller government. once the taxes are low and government is small you can simplify the tax code.
I'm not saying I agree with that or that I could ever actually happen but I don't see a flaw in the logic and why their own description of their mission can both say they are for simpler taxes and also be against the kind of simpler the linked article is about
I just looked it up [1] and depending upon filing status (single, married, head of household) the tax on the net taxable income of $50,000 (after deductions, expenses, etc) is between $6,576 and $8,278. $12,000 in taxes don't start until $65,000 net income.
Are you seriously proposing that a group that decided it was in their interest to lobby for confusing, painful taxes would say so in plain language on their Web site?
A quick search provided an ABC story that showed the rather short and simple pledge and the reasoning behind it.
Nothing stated in the article supports the claim made above. I believe that's just someone's interpretation in an effort to make certain people they disagree with look bad.
> He has decided that making taxes easier to do would make people more okay with tax increases ...
I'm sympathetic to this point of view -- in theory, bearing the pain of taxation, the taxpayers will be amenable to solutions to simplify the tax code to make that pain lessen.
I think, though, at this point, we can say that this has empirically failed. Ironically enough, TurboTax and its ilk have rendered this part almost moot -- the government can keep increasing the tax code complexity, and the software will gloss over the difficulties. Small, gradual simplifications to the tax code will have absolutely no effect, since people will still just use electronic systems to assist them.
In addition, the payroll tax withholding is probably responsible for the remainder -- it's hard to get clear visibility into how much you're actually paying. I only just did my taxes, and I could tell you what my refund was, but I couldn't tell you what I actually paid in taxes offhand.
> He runs an extremely influential organization that administers a sort of purity pledge that, for most Republican candidates for Congress, is necessary to sign in order to avoid being primaried
How
in the hell
is that legal
Ugh, subproblems everywhere. Fucking campaign finance private-sectorizing the practical viability of taking public office.
I don't know when the slogan of the Dutch tax authority, "We can’t make paying taxes pleasant, but at least we can make it simple" was introduced, but in my view it has been supported in three different ways:
1) a simplification of the tax rules - mainly by reducing the number of exceptions and tax deduction rules,
2) filing the tax forms digitally - they started with desktop applications, and now the main focus is on a web application, and
3) pre-entering the information the DTA already has on you, so you just need to correct and add missing information instead of entering everything from scratch - and they collect a lot of data of you yearly.
This improvement happened over the last 15 years, and the time required to filing tax returns was reduced from many hours (mainly to gather all the information, and writing it on a paper form) to like 30 minutes. That is, if your administration is up to date. Filing the tax forms is my yearly reminder to update my administration...
BTW, that slogan is stated more succinctly in Dutch: "Leuker kunnen we het niet maken. Wel makkelijker."
UK equivalent: "Tax doesn't have to be taxing". The UK web filing system is also pretty good (part of the GOV.UK project), although if you're in a nice straightforward salaried job you won't have to use it at all.
I find it pretty annoying actually. I have been submitting my returns digitally for several years now and I haven't noticed any improvements?
For example, it pre-fills some data but omits obvious stuff like my first name and email address which are highly unlikely to have changed since last year?
Some non-relevant sections can be ignored but others need you to enter 0.00.
Also, if there is an error in the electronic filing, so your return is not submitted, good luck on finding what that error was because they aren't going to tell you.
And, lastly, the switch from the old style site to the new could be handled better, like all in one go instead of randomly switching you between the two.
> For example, it pre-fills some data but omits obvious stuff like my first name and email address which are highly unlikely to have changed since last year?
They may be thinking that it is better to let you cache that information in your browser?
Well, I have always done the paper form instead of online (why? I don't know.. but this year will likely be online) and the paper form has your name and address on it, and you only have to change something if it is different.
> if you're in a nice straightforward salaried job you won't have to use it at all.
Until you have the gall to (god forbid) open a side business. After that, you'll forever be forced to file a tax return, even if you go back to being a regular employee. Because fuck entrepreneurship, amirite?
You can close a self employed tax account in the U.K. You'll have to file VAT and Tax info for that tax year but that's about it.
If you do not go through the process and close your income tax, NI and VAT accounts then yes you need to file them even if you no longer have a side business in practice.
It's a single phone call to cancel self-assessment for income tax and national insurance. Probably a second to cancel a VAT registration, but I've never had to do that.
It is still no krentebol to work with taxes in NL. Better than most places but if you have a company it still is way too much red tape. I am very much for paying taxes and I would not even mind overpaying if it were a lot simpler. Here in Spain it is hell: I know why it is that but it makes not declaring far more attractive so we Dutch did something right. Still it is way too much hassle, especially for the small amounts.
My experience with business taxes is very limited (just simple revenue taxes), so that could be a lot more complicated in many cases indeed. There are still sufficient numbers of accountancy and tax firms in NL, so it can't be simple in all cases. I was referring to personal income and property taxes.
I don't know about business taxes, but at least for a "simple" application like mine (fulltime employee, homeowner with mortgage) all the relevant information about income and wealth taxes was prefilled and correct. The only thing I had to enter were my "burgerservicenummer" and one deductible post (a university course).
The whole thing took about 15 minutes, including digitally signing and submitting it.
Oh, and if you filed your tax forms before April 1st, you get the DTA's reply before July 1st, with the indication whether you need to pay additional taxes, or get some of it paid back. Their final decision on the yearly income taxes, so when they 'close' the case, can happen between months or years later.
Point 1 may be a goal of the dutch Tax Administration but all those exceptions and subsidies (toeslagen) are mandated by politics so there is only so much they can do about it. In fact the dutch tax system is actually hugely complicated by the sheer amount of interdependent exceptions and subsidies. So I'm really surprised they use the Netherlands as example.
Tax rules used to be even more difficult, and filing the tax forms used to be manual. So, at least in NL there's been some progress over two decades (compared to in the USA, as mentioned in the article), and filing a simple yearly tax statement is indeed reduced to 20-30 minutes. Mainly because many exceptions have been deprecated over the last decades, also reducing the operating costs of the DTA.
The system of subsidies ("toeslagen") for rent, health care, child daycare and such is complicated indeed... but not really related to tax (although it is sometimes capped based on the income). It was a political coincidence/agreement that the responsibilities for paying those subsidies was put at the Dutch Tax Administration, as that agency was more used to receiving (tax) payments than paying subsidies to citizens. Culturally, handing out money didn't 'fit' the tax administration well in the beginning, but there was no other agency in NL that was deemed capable of getting it done in a short time.
It's a breeze in France too. Login to the government website, verify that everything preloaded is correct, add the few things they don't know about and you're done.
It's a mess in the US because Turbotax and others make money on that complexity and do lobbying to keep it that way.
I did mine yesterday. It took me a few clicks and couple of minutes. Very pleasant indeed.
I remember when I lived in the US a few years ago. Everybody told me that I had to go through a professional to fill my tax return as it was just too hard and error-prone. It sounded insane considering my situation was extremely simple. I was also surprised because I assumed the American tax system to be simpler than the French one.
In the end, it wasn't that hard, but I did have to spend some time to find and read the proper documentations. I think in France people are more reluctant to spend money on things they can do themselves, where Americans are more willing to rely on service providers.
The majority of UK residents don't need to file a tax return. The correct tax/national insurance/student loan deductions are withheld from their paycheques, and in case of problems, a phone call will normally sort them out.
Some people need to file returns. (Those that don't need to can also choose to.) Those people that do can file on paper, though the Government website, or using third party software. There's around 30 listed software providers for personal tax.
The fact most people have never seen a tax return in their lives hasn't prevented competition for tools in the more complex cases.
Bullshit. There is no reason to enter it---they already know almost everything. Just add to it if necessary.
There is no reason to pay a third party.
There is no reason to get a third party involved in your private financial matters, just another place to get hacked.
And just because it was tolerable for you, doesn't mean that's average. My taxes took four days and about eight pages, and I didn't make much last year.
Again they already know all this shit.
I filed taxes in NZ a few years back and it was a hundred times easier, "next next finish," on a modern website. Took 15 minutes.
France supposedly has some of the the highest tax rates in the world which seems to kind of fit some of the objections. that believe that making it easier means it will raise to France levels
I think you are missing the point. Companies like TurboTax clearly benefit from a complicated tax system and bad tax forms. Here on Sweden almost nobody uses third-party tax software for filing individual taxes. For most tax payers it is trivial to do your taxes on the government website.
Almost only companies use third-party software here, so the market for tax software is much smaller.
This is short and worth a listen, a Stanford Professor spent a year or so of his life piloting a program in California called "Ready Return", where the government filled out your taxes for you. Ultimately it was shot down by Intuit and H&R Block's lobbyists however.
I heard in a lecture that in Sweden the government revenue office is considered to have the best customer service and customer trust of any organization in the country. Can any Swedes confirm this?
The year I moved to the US I had a pretty complicated tax situation. My company paid for accounting help to get my taxes filed for that year as part of the relocation package. However, the accounting firm had some issues with my Swedish taxes, and told my company it would cost an extra $25k to fully investigate the situation to properly finish my Swedish tax return.
That dragged a bit, so I just called up the Swedish tax agency, explained my situation, and they told me which form to fill out and how, and which rules applied, all in a ten-minute free phonecall.
I'll take that over "APRIL 15TH OR ELSE!!!", which is all you get from the IRS.
It took me about 10 minutes here in the US. Log into Turbo Tax, have it pull my last year's information, update the income fields and click through a wizard.
It cost 30$, and I can see how you could argue the fact I paid a private company for a convience other countries get from their government for free is sad, but I'll take it since my quality of life would drop significantly at a comparable salary in Sweden due to the amount of taxation vs the ease of taxation. Relatives in Norway have expressed similar sentiments in reverse though, so I guess the grass is always greener on the other side?
It's only 10min [using Turbo Tax | Tax Act | Whatever] if you have a simple 1040/1040EZ. Even simple things like 1099-DIV or 1099-INT, capital gains & losses on investments (including employee stock purchase or options programs), and charitable donations can add many hours, especially if the software doesn't have an automated interface to your various financial accounts. I typically use Turbo Tax, too, and even pulling in the previous year's filing it still takes 1-2 full days to get everything roughly correct & complete.
I lucked out with the integrations lining up with most of my accounts this year(and personally I think the charitable donations wizard takes that long but I guess it depends on the nature of them), but even in years where it took days of slogging through wizards I still think about what the alternatives around the world are and I'm pretty ok with it.
Obviously given the choice of a comparable tax burden and simplified returns I'd take it, but I find that for the most part once your taxes are so complicated you have to pay someone to do your taxes, you still won't ever pay anything even remotely high enough to close the gap between what your tax burden in a country like Sweden would be and what it is here
And yet people somehow still manage to live happy, financially-secure lives in Sweden. There's a lot more to consider about livability than just "what would my tax burden look like?"
I would much rather pay more to a Sweden-/Europe-style system and feel like I was actually getting something for my taxes, vs. the current state in the US where I only feel like a small fraction of my tax bill actually goes toward expenditures I think are reasonable. And to top it off, this year my tax bill is going to an administration that actively hurts people I care about with its policies. Gross.
Geeze, no one is saying all there is to quality of life is a tax burden, and no one was talking about the Trump administration or how the government spends its tax. I don't support his administration but the whole dragging the Trump administration into everything on HN is getting old (taxes in the US have been messy for a while now)
I'm saying I in my current living situation feel I benefit from a lower tax burden and higher base salary more than ease of filing taxes would. In a few years that might not even hold true, and me benefiting more from the former doesn't mean I'm against the latter, they're tangential issues that happen to have a correlation in the US vs much of Europe (but obviously lack causation)
And to your point about reasonable expenditures, simpler tax structure won't suddenly change how the US government would spend money...
But the amount of taxation isn't connected to the ease of taxation. It's not an either-or.
Also, in the US, as other commenters have pointed out in this thread, implementing pre-filled returns would increase tax revenue, since it would reduce tax fraud considerably.
In Australia, via the mygov tool, for a simple wage earner like me, 10 minutes. All the payroll taxes amounts are prefilled, maybe 10 questions in all. Got my refund in ~ 10 days. The Australian Tax Office has a fairly extensive developers program to encourage more/better tooling and compliance.
BTW, the refund is a super-cool thing about the Australian system that may not be super-widespread. The Icelandic system is a very similar pay-as-you-go tax system, so tax is predicted and withheld from your wages over the course of the year.
But Iceland errs on the side of under-withholding, if they don't know what your income is going to be. As a result, come tax time, most people get a letter saying "you owe us 60,000isk"[1], and they pay it back as extra money garnished from their wages over the next year.
The Australian government errs on the side of over-withholding, which sounds bad, but it's more like a mandatory saving scheme. Most people discover the tax office has over-charged them by at least $800 over the course of the year, and you get it paid to you in a lump sum after they process your tax return. After deductions are filed, it's not unheard of for people to get 4-6k back.
As a result, for most people in Australia, tax season has a bit of a party atmosphere to it. You'll find people talking about what they're going to buy with their return, and there are sometimes tax season sales on things like TV's etc.
It's a really great example of a small and seemingly unrelated implementation detail making or breaking the whole experience.
I view over-withholding as an interest free loan to the government. No thanks. I'd rather underpay by 1% than overpay. For me 1% is over $100/mo. I'd rather earn interest, dividends, whatever on that and then pay the balance.
They seem to over-withhold in Canada as well, and I disagree with it for similar reasons.
On the other hand, it is likely a huge benefit to the poor and those who are poor at managing their money. Come tax time, they could easily face a bill that exceeds their paycheck and paying interest on top of their taxes. It would also cost the government more since they would have to pursue collection more aggressively.
They tend to overwithhold in Denmark as well, mostly because it avoids having to chase down people for payments later (giving people refunds is easier and fully automated). However they do pay interest on the overwithheld amount.
On the otherhand, it accounts for earnings that your employer doesn't know about - e.g. interest on investments. Which is useful for people who aren't great a money management.
Does the Australian government pay interest on the over withheld amount? If not, then it is nothing to rejoice to get a refund. If you are getting a tax refund it means that you not only paid the money you shouldn't have paid in the first place but you also loaned it to the government interest free. The government hands you your money back a year later with no interest and in a depreciated form (because of inflation). Over withholding is financially sub-optimal decision for the tax payer.
On a related note, a Stanford tax law professor Joseph Bankman had run trials of pre-filled forms for a few California state taxpayers. Listen to his journey on Episode 760 of PlanetMoney podcast:
ReadyReturn sounds like it only works if you have an extremely simple tax return. While that is great, I don't understand how the people with a simple W-2 are having such a painful time with taxes. It takes about 5-10 minutes to finish a simple return. What am I missing?
Assuming you're using tax prep software, you still have to click through all the stuff that doesn't apply to you, and it behooves you to at least skim the text to be sure that law changes haven't changed anything for you this year. Just the act of clicking "no" on everything will probably run you a good 20 minutes, with another 5-10 of actually entering your W-2 data and supplying payment information.
You do not have to go through all the questions if you know your tax situation. It is only for people who are clueless about their tax situation that they have to go through all the questions. If you know you are going to take standard deduction there's no point in going through the entire list of itemized deductions only to find out what you already knew.
I've taken to referring to the time that I spend filling out US Government tax forms as the "Norquist tax". After all, it's hours of my time which I have to spend giving work to the government.
Maybe if we all start calling it that, Americans for Tax Reform will realize that they are causing more harm than good by lobbying against a more efficient filing system. They may think that having us spend a bunch of time doing our taxes makes us better realize how much taxes we pay. In reality, it's just another form of government waste.
I'm in the UK. If you work as a regular employee, your tax gets automatically deducted and noted in your payslip. Each year you get a form posted out and if you disagree with the amount (I don't know anyone who ever has) you can contact HMRC to sort out the difference.
If you work as a contractor/self employed, you have to fill in a self assessment form. I personally don't need to do one, but my partner did, and it took us about 30 minutes last year.
They might tell, and if they do it's probably not something that's going to happen swiftly.
I took a job with an employer in London who didn't get my taxes right, but I was none the wiser of course. A few months in, my tax increased by a significant amount from one paycheck to the next, and this tipped me off to something being wrong. I talked with my employer who looked in to it, but this kept on being the same for about three months. At this point, I'd been on the job for maybe 7 months or so. Finally I'm told I have to sort this out with HMRC myself, so I called them. They were very helpful and pleasant to deal with, and the person on the other end of the phone call very briefly looked over my account and determined I've been overpaying every single month – by a lot. They noted as well that HMRC had indeed changed my tax code to an "emergency rate" or some such about three months prior to the call, but failed to note the wrong tax code that was already there in the first place. This person did sort it all out however, and a couple of weeks later I got a check in the mail for over £6000.
It did finally work out in the end, but I'm not sure I would've noticed if they hadn't hiked my tax so significantly, and I don't know what would've happened then since apparently they hadn't registered the error either.
Moral of the story: HMRC are there to help, but you may want to be proactive and call them if you think anything might be wrong, or you want to double check something. Their phone service is very helpful, and usually not too busy.
I had exactly the same situation while at a startup, which got spotted by myself ("Woah why did my taxes jump?") and my employer ("What's this weird tax code?"). Getting it fixed with HMRC was almost trivial, and the refund was very nice.
Years later, I moved to the US. I'm sure it's probably less bad if you've grown up with this system, but I still have no idea what to change (or by how much) to make sure I don't owe taxes next year. I don't understand how to play the tax game, so I'm pretty sure I'm paying much more than I should.
However, a friend has an interestingly different approach: pay as little as possible in taxes throughout the year, set aside what you estimate your tax burden will be, keep the interest, and pay it all in one lump sum at tax time. They refer to this as "not giving the government an interest-free loan".
Edited to add: I never thought I'd say this, but... I miss HMRC.
In the UK the majority of people do absolutely nothing. Your wage slip says how much tax you've paid each month (through the PAYE system) and then at the end of the tax year your company sends you a P60 form (https://www.gov.uk/paye-forms-p45-p60-p11d/p60) which is simply a pre-filled summary of all the tax you paid that year.
That's the case for anyone with the most common case of a single salaried job. If you have a more complex situation (dividends from company share, taxable investments, multiple jobs) then you need to fill in a self-assessment form. I did one last year and it was all done online and took about an hour in total.
The tax code is too complex, which is why it takes so much work to correctly compute what you owe. It doesn't matter whether the tax payer does this, or someone does this on their behalf to make it "easy". Taxes should be simple to pay because they're simply structured.
In the US, Congress derives much of its power from tweaking the tax code, it's how campaign contributions are rewarded. Do this for a hundred years, and you get a complex tax code. This is also why it's not going to be simplified anytime soon, since Congress will never vote to reduce its own power.
Here in the Netherlands my employer's data is all pre-filled in. Just have to log in to a mobile app and sign with my citizen's digital ID. (just a login with 2FA).
All of that takes about 3 minutes, and it's pretty much sufficient for like 80-90% of my peers (fresh out of college).
But with more complex deductions, you need to use the 'full web app', which is also pre-filled but comes with tons of questions. They take me about 20-30 minutes, because I know how it all works nowadays. But the first time it took me 2 hours cause there's lots of definitions and words that aren't frequently used in the Dutch language.
The Finnish system has improved to the point where I can finally say that filing tax returns is a pleasant experience.
We get pre-filled tax forms which include salaries and all capital gains from dividends. If the figures are correct, you don't need to do anything: the return has been filed for you. If you need to change or update the information, then you can do it online.
The only time an individual (like me) has to actually add to the pre-filled data is when they have additional income from properties or land. Back in 2013, when the online system first started to accept rental income, I would still need to fill in every freaking month. Separately. In 2014, I needed to provide the personal details of the tenants, but at least the rental income and expenses could be aggregated. For tax year 2016, I only needed to provide the aggregate income and expense for the properties in question.
My tax returns used to be really complicated, and for nearly a decade the Finnish tax authorities tried to systematically tax me twice on the same income. I used to send documents and letters in every year. But that has changed. When I filed my taxes in March, it took me a grand total of 10 minutes.
If I hadn't had the rental income to deal with, it would have been less than 5 minutes. So yes: it's finally a pleasant experience.
Employers withhold part of your salary - I think it's a fixed percentage based on the height of the salary - and pay that to the tax authority.
Yearly, citizens file their taxes, giving information that the employer doesn't have or does not take into account (like gifts to charity, partner income, mortgage interest paid, health care related costs, tax paid on dividend, ...) that results in more or less taxes that should have been paid. After receiving that tax-related information, the DTA calculates what you should pay additionally, or whether you get some of the taxes paid back.
I love paying my taxes, and I kinda like the baroque U.S. process. Every April, I spend a couple of weeks being salty that government is penalizing me for being married, penalizing me for not taking out a giant loan to buy a McMansion in the suburbs, taking my money and using it to bomb Syria instead of helping working class families, etc. If my taxes just got auto-paid, I don't think I would even think of these things, and I don't think that'd be a good thing.
Did you learn about those problems from doing your taxes, or does doing your taxes just remind you? If it's the latter, a prefiling system would serve almost the same purpose.
In Romania if you don't have any income except for your salary, you don't have to do anything. Yes, there are no tax exemptions or deductions, but on the other hand life is simple.
How often are those exemptions or deductions worth it, especially when compared to the potential complexity and additional cost of a byzantine tax system?
pre-filled forms will probably help a largeish proportion of americans who have dead-simple taxes.
once you start doing absolutely anything else (having a side job, renting out property, participating in the stock market, having income in multiple states, etc etc etc), you're in the byzantine territory of income/deductions/credits/AMT where nearly every line on every form involves reading the instructions for that line (and yes, nearly every line has its own instructions) and reflecting on your life to decide whether you think that purchase qualifies as a deduction, or what percent of your car's annual depreciation you can allocate as a business expense, or whether you need to declare your 2014 California refund as income on your 2015 Oregon taxes. Money ping-pongs around, getting taxed coming and going (you pay tax on your salary and tax again when you use that money to pay for gasoline (and a very few of these taxes are multiplicative instead of additive, so you can in fact pay tax _on the tax you're paying to buy gas_)).
I'm really not doing justice to the intricacies of the tax system. I would really enjoy reading a James Mickens tribute to it.
Pre-filled forms aren't going to help navigate the insanity, unless the governments (federal and all the states) have access to data about every transaction, every penny that flows through your household.
Most Americans have fairly simple single income taxes. Also all banks and investment services have to report your assets and income to the IRS.
If your taxes are complicated enough to need an actual accountant (not a tax preparer) you'd still need an accountant. But the tax preparers that fill out forms for simple W2s and a couple 1099 forms would be out of business.
The beauty of free market is that it can create markets where there otherwise would be none. Once you normalize lobbying in your society, possibilities are virtually limitless.
I meant is it really a free market when Intuit needs to pay off the government through lobbying to stop them making tax filing simpler so they can keep their market.
Yes. Others are 'free' to pay more to get candidates elected that would simplify the tax return. The 'beauty' of concentrated benefits and distributed pain is that the organization overhead combined with the real but sufficiently diluted pain for each individual sufferer sort of pre-empts this. This is why in these so called 'free' markets you end-up with all these complete absurd situations at the societal level.
Pretending like the only thing stopping them is Intuit is pretty disingenuous. All the handouts to various groups (homeowners, parents, college grads, etc) would go away under a simpler system. You're going to be the congressman to tell home owners in your district, you know, the ones who vote frequently and donate money to campaigns, that they no longer get to deduct their mortgage interest and property taxes? Very, very doubtful.
>I meant is it really a free market when Intuit needs to pay off the government through lobbying to stop them making tax filing simpler so they can keep their market.
You make it sound as if the government is just dying to simplify this stuff, but Intuit won't let them.
Intuit lobbies in its self interest. There is nothing wrong with that. The damage is done by the politicians who listen to the lobbying effort and play along.
Does the US have a employer withholding system (i.e. if you get paid $1000 in a week, your employer withholds and remits whatever the pro rata amount is for $52,000 annual income to the Tax Office)? We have that in Australia, and it definitely simplifies the process for workers at the end of the year.
Personally, I've always liked the idea of a 'standard deduction'. People with a steady paying job for the whole year, and simple tax affairs, don't have much of a reason to fill out a tax return given how much data our Tax Office pulls in from other sources (e.g. your bank interest gets pre-filled). The longest part of the whole exercise is claiming all those little work-related deductions here and there. For most people I don't think this ever exceeds $1000 total.
So if the government just gave everyone a default $1000 deduction, combined with pre-filling, filing a tax return for most people would be a simple matter of looking at the summary and hitting 'agree'. You could even take it one step further: if you don't fill out a tax return the government assumes you agree that your default return is correct.
We almost had this in Australia [0]. It was a measure in our 2010-11 Federal Budget [1], but we didn't go through with it for.... reasons...
[0] And there's good reason to believe it would have radically simplified things. I recall 'tax agents' really hating the idea for some strange reason.
Disclaimer: I am not a tax professional, this is not tax advice, and I'm not your lawyer either!
> We have that [a employer withholding system] in Australia, and it definitely simplifies the process for workers at the end of the year.
We have that in America too, only it complicates our tax forms.
When filling out your Form 1040s, under "Payments" you fill field 64 "Federal income tax withheld from Forms W-2 and 1099" from your employer-provided W-2's field 2 "Federal income tax withheld" (ignoring fields 4 and 6, "Social security tax" and "Medicare tax" withheld.) And of course, any 1099-Rs with federal income tax withheld must also be attached to your tax return...
You can ask your employer to adjust your withholding - if you owe too much money (more than $1000 and more than 10% of your total yearly taxes?) come tax time, you'll have to pay an additional penalty. If you paid too much already, the government can wire it back to you, or apply it to next year's taxes.
> Personally, I've always liked the idea of a 'standard deduction'
We have this in America, it's great - mine was "only" $6300 this year (single, no dependents). On the other hand, there are deductions for everything from mortgages to electric vehicles (expiring after this tax year), which can add up quick. Fortunately I'm not there... yet...
Yes, the US does have an employer withholding system but there are so many more layers of taxes and complexity because the taxation system is less federalised.
In Australia there is a single federal employment tax, and a single federal sales tax. States and counties typically collect property tax and fees from services.
In the US both the federal and state governments collect income tax. The tax rates and deduction complexity varies widely between the 52 states. Then the states AND counties (districts) have different sales tax rates. California alone has over 1790 districts each with sales taxes set at a local level.
Not to mention capital gains, Medicare tax etc...
Then the comparatively high lobbying, wealth inequality and inefficiencies in the US political systems makes tax change very slow or regressive.
Wow, that's a lot of complexity! I remember the various state sales taxes when I visited the US a few years ago (that weren't built into the menu prices). Between that and tipping, I swear Americans must be absolute guns when it comes to quick mental arithmetic.
On the tax complexity, at least on the bright side the only direction is 'up' from here :)
US companies do withhold money from each paycheck, but this varies not just by how much you make, but also by how many dependents you have and a few other things [0]. The US also has default deductions, or a person can choose to itemize. These vary if you are "head of household", single, married. However then there's all kinds of other deductions and things to complicate your tax return such as retirement accounts, mortgages, kids, side income, student loan interest, interest earned and on and on. Would be great if it was easier. :)
Edit: People who are contractors / not employees have to remember to set aside a portion of their income that the employer would take out automatically for them.
You've described the American tax system in a nutshell.
Employers withheld on wages, which is how most Americans "pay" their taxes. Most Americans also use a standard deduction, which is several thousand dollars. Taxpayers can alternatively itemize up all of their deductions and if the sum total is larger, use that sum instead of the standard deduction.
A US taxpayer with just W2 (employee) wages taking the standard deduction can fill out a tax return in 5 minutes or less. It only gets complicated when you try to take advantage of the many deductions and tax credits available in the tax code.
What I find truly amazing about the tax situation here in the US is the sheer unpredictability. You the employee are burdened with choosing the right formula to deduct taxes from your paychecks, but there is no ironclad way to ensure that you deduct only the exact right amount—or to check whether you've been deducting enough. For most people, tax time comes and either they get a bunch of money back (they deducted too much), or they owe a bunch of money (they deducted too little). I'd rather just have exactly the right amount deducted.
Some people choose to not deduct any, and put a guesstimate of what their tax bill will be into savings, so that they can make some tiny amount of interest on it over the course of the year, then when tax time comes, pay just exactly what's owed. But this feels like playing with fire to me.
> Some people choose to not deduct any [...] this feels like playing with fire to me
Well it should, because it's not really legal. If you aren't having taxes automatically deducted then you're expected to pay quarterly estimated taxes. And if you should have been having taxes automatically deducted and underpay by too much, then there's a fine associated with it.
If all you have is a W-2 and minimal deductions, in my experience it's pretty close unless you think +- $1K is "a bunch."
Once you have dividends, stock sales, mortgages, other revenue, etc. your employer really has no way to know what the right amount to deduct is. If you're consistently over or under, you can change the number of allowances on a W-4 form.
>Some people choose to not deduct any
You can take a large number of allowances but I'm not sure you typically can just not take any deductions. If you significantly underpay you may get hit with a penalty and will have to make estimated tax payments the following year.
The reason American taxes are more complex is that both parties use the income tax system for social engineering. They want to encourage things like home ownership, attending college, having kids, donating to charity, etc, so they let you deduct related costs.
Modifying the tax code is also the easiest way to accomplish redistribution of wealth (for better or for worse). This is at least in part because the complexity of the tax code obfuscates the cost of the program. For example, should we continue to fund the budget of the "Department of Benefits for People with Spouses Born Before January 2, 1952"? Who benefits (how many and by how much)? What does this program cost? Nobody knows. There is no such department. Instead there is a check box on line 39a of the 1040. Checking it might change the standard deduction, for people who take the standard deduction, if they checked some other boxes, "see instructions".
I have tons of deductions too, but the tax authority just assumes I want to do them (interest rate, pension savings, a deduction for home repair ...) so they are filled in so I just accept them. If there is a deduction the trick is to e sure the burden of reporting is placed on the receiver, so charities report donations etc. Because there are fewer charities than donors, that makes the total burden smaller.
I'm going to stay away from discussing TurboTax from a political perspective.
However, I have used TurboTax since the first year I had income. It's super easy. As my income has gotten complex over time (from simple, one employer tax return to multiple employers in a same year, real estate, investments, and office expenses), I have found TurboTax worth the $90 or $100 it costs to purchase the software every year. I always purchase the $40 "Audit Protection" and have never used it: not once I have been audited.
It does take some investment of time. You need to read the questions, learn to figure out the forms that you get from banks, and be careful in inputing your data. But a lot of the sections are skipped anyway. I learned to stay away from buying stocks that are partnerships (pain the behind to do during TaxTime, not worth the hassle if you can find alternative stocks). TurboTax remembers my last year's numbers and that is also super easy. It helps me stay informed and keep responsibility for my tax situation and make my own decisions on what to do next year without "the government or the employer doing it for me."
I have always had the temptation to go to a full service (H&R Block, or some of the higher end ones offered by my bank), with the idea of maybe discovering that I have been overpaying all these years! But I have never done it, mainly because of concerns on identity theft. Today, all my data is in my computer and the only time the data leaves my network is when I send it to TurboTax for e-filing. This could also be avoided if I printed it and mailed it, but I rather not take my chances with lost mail.
I did have some large income a number of years back due to a sale of a company, and I was doubting myself about whether I was "paying too much." I simply asked folks around me, and they told me "nope, you are good" as the cash was distributed as regular income in my W2.
All in all, TurboTax has served me well. My investment is a total of about 10 hours or so spread over a few months. Every time I get a new form, I go to TurboTax and input it. Sometime around March I wrap things up and file.
I've had the same experience. I just collect the various forms I get mailed in a little bin next to my computer, and when I do my taxes it takes two hours max. And that's with a fair amount of deductions, IRA/retirement contributions, and a side consulting gig. Usually spend $100-$150 with them based on my needs that year, including the audit protection.
I file mine by ticking a checkbox and signing with the normal national digital id app. This is Sweden.
I do not understand how the hell this is still so complicated in the US. Just change it?
My impression of politics and authorities is "if something is obviously broken then it's already worked on and probably fixed within a year or two".
The reason crap isn't fixed in the US? Beats me - but I'll guess: because a lot of people don't want it fixed. And those people contribute money to politics. You have a political system where money can be used to campaign for political office. Fix that.
To give you a small example: the deduction for moving expenses[0]. If you move for work (plus some other small conditions), you can deduct those expenses from your taxable income. This can't be claimed for you automatically, you have to ask for it. To automatically file your taxes would very likely mean you miss this deduction. It's the legions of (arguably) boutique tax credits like this that crank up the complexity of filling. Individually most of them are reasonable, but it would be hard to take them away because they are likely to be used by a lot of people (the mortgage interest deduction for homeowners, for example).
We have those - but the system is constructed to be simple. If a not insignificant part of the population is eligible for some deduction, then either a) ensure it's automatically registered or b) remove the deduction or raise tresholds until everyone can again file automatically.
For example, interest rates, pensions, charities, home improvements etc are deductible and automatically deducted since e.g the bank or charity reports the interest cost or donation etc. Travel to work is deductible but the treshold for making the deduction is so high that few can claim it.
The key is to design the tax system so that it is easy to file. A deduction no matter how fair and reasonable that would make thousands have to file paperwork doesn't make sense.
But you are overlooking the fundamental underlying problem. You didn't mention whether the "easy to file" tax system would be an advantage to Democrats or Republicans. Without knowing that, it is impossible to assess any piece of legislation.
Wouldn't it be a benefit for most taxpayers, and only a drawback to a small minority of taxpayers and companies involved in e.g tax law or tax software?
If a law is merely about bureaucracy and is neutral in terms of e.g tax pressure of redistribution then any political resistance must surely be because of some kind of unwanted influence from an organization or company?
Things like this exist in Sweden, and they aren't a problem.
When you sign on to the government tax website (or mobile app, or whatever) you are presented with all the numbers they have for you, which means whatever your employer(s) and bank(s) have reported on you. (Same as in the US, the IRS knows these things already, they just don't tell you what they know).
If you are fine with that, you sign it, and it's done. Denmark has their system setup so that if you do nothing, it's the same as accepting.
But if you have more information, if you have deductions to make, and there's plenty of those in Sweden as well, you just fill in the information in the very nice government tax app, and you're done.
Just filed my FBAR and every year it feels like the requirements change so they have a reason to convict you of something. This year they just moved the due date up by a few months for no apparent reason. I'm simply lucky that I happened to do it now (I normally procrastinate until June); that's a good $10,000 fine if they believe it was accidental; $100,000 otherwise.
I'm fine with taxes, but filing taxes in the US is utter bullshit.
To give credit where it's due, though, the state of California has free online filing (Calfile) , which is nice.
“We can’t make paying taxes pleasant, but at least we can make it simple.”
I actually don't mind paying taxes, because I can see around me every day that the money is mostly put to good use. I can imagine if I lived in a place where there were little or no public services, bad public schools, bad infrastructure, five digit annual college fees, polluted tap water, power with frequent blackouts or brownouts etc, I'd be pissed off with my tax bill too.
It sounds like you are describing different communities with different problems (i.e. Flint, MI doesn't have problems with frequent Brown outside - that was California 15 years ago) as though they are the same one. Also, most of those examples are things from state governments rather than the federal government. Of course, people don't talk much about state tax reform. State tax revenue sources can vary from property taxes to income tax to sales tax. Some states don't have an income tax and reply mainly on sales tax.
When it comes to philosophical objections to taxation, it's not the awful infrastructure around me that bothers me, it's the bombs dropped on other people's children and the bars that confine people for no morally justifiable reason.
My heart goes out to the people held in torturous conditions in prison on my tax dollar. I hope that I someday have the strength to resist and refuse to pay for this.
I hate doing tax paper work like everybody but I would rather do it myself than let government do it. When I do it myself I am very careful to make sure I have gotten every possible deduction. If I let the government do it, most likely I will wait until the last day to review it and then I would say 'yeah looks right' without doing due diligence. If the government makes mistake of omitting a deduction or two on people's tax return then people would complain how government is trying to rip them off by deliberately omitting deductions. I also hate the complicated tax code like everybody else but that is a necessary evil I believe. US has large variations in income/wealth and one size doesn't fit all. The fact that tax code is complicated is actually an indication that there are tax breaks available for most people in many forms. US taxes are much lower than European taxes. It is easy to simplify the tax code by taxing everybody 30-40% like European countries. I would rather have a complicated tax code that results in lower taxes than a simple tax code that results in higher taxes.
The complexity of the tax code is completely unrelated to the cost of running your country, which is what taxes have to cover.
Increased complexity doesn't mean lower taxes or higher taxes, in principle, it just means complex taxes.
In practice, it actually leads to higher taxes to pay for an army of people to check the code is being applied correctly.
In Taiwan they have a system where you can choose to do manual deductions (A), if you think that's in your interest. Or you can take (B) 'the average deduction+10%'. Then you have a 1-page declaration of your income, no deductions marked, but they calculate what the guys who use (A) get, take the average, add 10%, then knock that off your tax bill.
No false claims, no evidence to supply, nothing to check, both sides win, each tax official can manage 100x as many Bs as As.
It's a practical example of how simpler tax codes can result in lower taxes by reducing (needlessly) big government.
You can do that in US too. You can take itemized deduction (similar to A you mention) or you can take standard deduction which is flat amount (similar to B). But the US government lets you apply many more deductions after taking either of these and that is where the complexity comes. You can choose to do just itemized or standard deductions in US and not bother about other ways of saving money and then your taxes will be simple like Taiwan. That's your decision.
> But the US government lets you apply many more deductions after taking either of these and that is where the complexity comes.
I feel you've missed my point. Most countries offer the ability to consolidate some deductions into a standard deduction.
But in Taiwan they consolidate ALL the deductions, as far as memory serves; and the way they do it isn't a fixed amount (e.g. 5%) but the sum of what the other people achieve who go the long route, plus a bonus.
So literally it's 1-page 'sign here', or a complex form.
And it's literally a statistically 'guaranteed' win if you make things easy on everyone (average + 10%).
In India, most people I know use ClearTax. It's freemium(the last 3 years I've only used the free version, that was enough.) and I spent only about 20 minutes or so every year filing my taxes. Everything becomes super simple with Form 16, given out by my employer. And apart from this the government has an e-filing system but I've never used it. ClearTax was enough.
I'm the only American I know that does my own taxes. I've never paid anyone to do them. I've never use software to do it. I print the form, and fill it out with a pen. It only takes me a few minutes. I even filed my own C corporation taxes once long ago. I'm not a CPA or tax lawyer or in any line of work related to taxes.
My handwriting is terrible; I'd at least want to use a form-fillable PDF, and having the ability to copy/paste figures between forms and a digital calculator would make me feel better about not making arithmetic or transcription errors.
I used to use TaxAct to do my taxes, but unfortunately they aren't simple enough anymore that I even feel comfortable using that without making a mistake. I just got my completed return back from my CPA the other day, and there are (required) things he did on there that I definitely would not have known how to do, even with the prompts in tax-prep software. If I had to puzzle through IRS form instructions, it'd be even more of a mess.
I actually did decide to look up one of the more confusing things my CPA did by reading some IRS form instructions, and it confused me beyond belief. I asked him about it and his explanation sounded reasonable, but there's no way I would have figured it out on my own. The US tax system is so messed up.
I used to do those, but honestly, it's just easier to do it with pen and paper. Either there is automath in the form that screws up if you fill in a field out of order, or they make the form so it cannot be saved. PDF editing software sucks too. It's very unfriendly on Linux. I would suffer through it when I used OS X, because I worried about legibility in the small boxes. I'd never go back to that now. It's a huge pain. The pen is mightier than the keyboard with tax forms.
The only justification I've ever heard for why lobbyism should be legal is "lobbyists act as 'lawyers' to help the people be heard in the legislative sphere".
If that were true, "if you cannot afford a lobbyist, one will be provided to you" would be a thing (and no, I'm not talking about crowd-funded 'patches' like the public funded NPOs/watchdogs protecting our rights).
As far as I'm concerned it's functionally equivalent to straight-up bribery. Accomplishes the same ends for the same people, just sidesteps the definition.
It's hard to distinguish "lobbyists" from "a group of concerned citizen activists advocating for a cause they care about". Any rules imposed on the former would also affect the latter.
More robust restrictions on the flow of money from lobbyists to campaigns and superPACs could be an effective deterrent on the worst influences of lobbyists, though.
Banking and payment systems are arcane too. Nobody uses checks any more except the US, and online banking is soooo complicated and confusing completed to other Western countries.
Yup. Not only that, but checks are still the most secure, most convenient, easiest way to transfer money in the US despite things like ACH. Banks are still not required to implement proper online security by law and are generally the most insecure sites one visits on the web. Not all our problems are due to lobbying/legal corruption, but most are and therefore most have simple solutions. Sad.
I did some work for the IRS several years ago to explore the same idea. There are many benefits, including simplicity and accuracy of filing (closing the $500B tax gap), as well as better fraud protection (another $25B).
Protectionism of the tax return industry is common, but not the primary reason. Instead, the biggest pushback is from taxpayer advocacy groups. The issue is this: for many Americans, particularly low income Americans, their tax refund is the largest check they receive all year. Delaying that refund in order to receive all tax information (e.g., from banks and employers) and pre-populate a tax return would push back initial refund checks by 1-2 months. This is tantamount to political suicide.
I don't have the most complex tax situation: a wife, child, income, capital gains. But it takes me maybe 15 minutes in Canada to do.
I once screwed it up and they fixed it for me, yielding a larger return than I calculated (I accidentally zeroed the RRSP contribution carry over value).
Thought maybe this would help give perspective of what can be.
I once heard a (bad) joke. If you are in Canada and hold the door for a group of 5 people you can expect 7 "thank you"s.
Well that's just a joke I thought, there is no way people are polite anywhere. So I decided to act on this little limerick and compare it to Nebraska manners. At a few restaurants, in home town of Omaha, I tried holding the door for groups counting the "thank you"s. The first group of 5 gave me 6 "thank you"s.
I thought that was actually pretty good, but it is not an experiment without a control. I had a friend going to Canada and asked him to try it. Sure enough the first group of 5 gave him 7 "thank you"s.
Ah, this takes me back -- one of things that I really liked in Obama's 2008 campaign [1]:
> Simplify Tax Filings for Middle Class Americans: Obama will dramatically simplify tax filings so that millions of Americans will be able to do their taxes in less than five minutes. Obama will ensure that the IRS uses the information it already gets from banks and employers to give taxpayers the option of pre-filled tax forms to verify, sign and return. Experts estimate that the Obama proposal will save Americans up to 200 million total hours of work and aggravation and up to $2 billion in tax preparer fees.
Sorry, but no: the US doesn't lead in this issue either. Filling in taxes here is worse that going to the dentist.
It's embarrassing as well to witness so many Americans to dismiss what's obvious for anybody having lived abroad. The tax system here sucks donkey balls. Background: lived and worked in three different countries, filled in taxes everywhere by myself. Sometimes with a dictionary, and never was so bad as in the US, even with Turbo Tax.
No, it's not only tax filling. No sir: immigration system, health care, education ... failing to admit the US lags far behind the (rest of the) civilized world is the surest recipe for worsening the situation.
Get smart, America. You're for a big surprise when you wake up to a world that's surpassed you already in most issues.
I'm not sure how easy it is in Japan but in Singapore, It just took me 10-15 mins to file my tax.
1. Login to IRAS(tax bureau) portal using the national ID (for me as foreigner, I used my employment pass ID)
2. Open the page for filing income tax
3. I entered total annual salary and allowances
4. I have donated to a government-recognized charity and this is automatically reflected on the form. It seems that the charity uploads donation infos to IRAS
5. Check if the tax relief for having a child is there
6. Click submit
7. Review and re-submit
You also have an option to do installment, deducting from your bank account monthly.
I don't have any other source of income so it will be different for other people.
Ex-Russian here: this year I had very pleasant experience with FNS to declare and pay income tax for some extra income (13% flat rate btw). 5 minutes on the web site just to declare the money they were not yet aware of, click submit and choose payment method (could be cash payment in any bank, credit card or via integration with lots of banking APIs - my choice). Few more minutes after I figured out there's a small old debt on property tax, that they never bothered to collect, to pay it too. They started with rather complex desktop app and continuously improved UX, so now it's really good. Worth to mention that they have 2FA option with security token.
Belgium is interesting. The forms are really complicated, but luckily largely prefilled forms for most (salary and pension income, mortgage related deductions, ...).
Apart from the complexity, the problem here is the extremely slow return of what the government owes you.
For 2016 income:
* filing between 20170426 - 20170630
* final calculation by post ~20171101 - ~20180401
* return of overpaid amount ~20180101 - ~20180601
The Belgian revenue service almost always overcharges on obligatory prepayments. Refunds happen only at the end of the process. That means an ordinary Belgian citizen gives a free loan to Belgian government for ~12-18 months.
In Sweden you used to earn interest on money in your tax account, but I think the current government removed that this year so now it's a free loan to the government.
In some ways, the tax account was a better place to put money than a bank account. There have been periods where the interest on the tax account was competitive compared to banks, so some people would pay a years worth of taxes up front, and come tax season reap the benefits in terms of higher returns. Since they'd already paid all their dues, they'd pay nothing each month and the tax man would just reconcile things monthly as the tax comes due.
This isn't as palatable today when there's no interest, but I know some people still do it because it means their take home pay each month is "higher" in the sense that taxes aren't deducted, because they've already been paid. I've considered doing it, since while it makes no difference in the amount I pay, it means I have more cash in hand at the end of each month, rather than having amortize the tax cost over the year. Obviously this only works if you put away that money elsewhere somehow, taxes still have to be paid after all.
This also reminds me of a trick a buddy once pulled in the U.K. He paid all his taxes to the wrong account, but it was still in the hands of HMRC. Then when the tax man came knocking, he just showed his payment receipts and HMRC noted the error, fixed it up and apologized for he inconvenience. As well, he'd be paid back interest earned on this money, because the account he paid into had a higher interest than the one he should've paid to, which may have had no interest – I don't quite recall. I don't know if he still does this, but he did it by mistake one year, saw the benefits and figured it wasn't illegal so he just kept doing it. If there's anyone here that knows what I'm talking about I'd love to hear you thoughts!
In Austria, we only have to file (online) every 5 years, and even that is somewhat optional. If you don't do your taxes, the only loser will be you, since you might lose out on getting some cash back.
It shouldn't, and in Sweden it obviously isn't – I think it's great! But the moment you start doing things slightly out of this norm, maybe you rent out your apartment for some time, maybe you have capital gains, maybe you were paid dividend as a small business owner... it gets complex real fast.
Skatteverket is a pretty knowledgeable organization though, and quite friendly when you have questions to ask so I recommend giving them a call if you need things clarified. They've helped me out a lot simply by educating me when I've called asking all sorts of dumb questions.
As much as I dislike paying taxes, the process of doing so is anything but inconvenient in Sweden.
I don't mind the idea of figuring my own taxes, after all I can lookup all the numbers pretty easily, but the main obstacle to that is the tax instructions are impossible to parse.
We should require the IRS to release the tax forms in a machine-readable format, e.g., as open-source software. The human-readable instructions should merely be the spec.
Other people can write nice interfaces on top of that. Then you can run the code on your phone to figure your taxes.
In India, our income tax department accepts returns as an XML document, and tax prep software developers have built tools that basically help you generate the XML and upload it to the e-filing website.
Other than this, the government run e-filing website also has a nice interface to do your taxes. It's fairly simple. Just fill in numbers and click Next Next Next Submit, and you're done.
For income tax return, many countries offer the possibility of filing a tax return that is pre-filled with information available to the tax revenue service.
For a person with simple reporting requirements, like only one source of income from a job, and no foreign income (99% of tax returns), the most likely required action is to just accept the proposal and file it... all done for free.
Because like healthcare Americans are governed by lobbyists and ideology. US tax law filing complexity is a flagrant violation of due process but the Supreme Court refuses to hear the many cases they've received.
Isn't there FreeFile on IRS's website which allows someone with a simple return (no capital gains, only standard deductions etc) to file for free. It would be as simple as described in this article.
Perhaps it would be easier to have the government collect all of our income, subtract the taxes, and pay us the difference once a year. That would be even simpler.
Here (UK) it's taken care of by the provider for most people.
If you were to pay £80 into a personal pension (similar to an IRA), about a month later an additional £20 would be added. That's tax relief at the 20% basic rate. (Higher rate payers currently need to file to claim additional relief, but there's no reason that couldn't be automated too.)
If you had a company pension instead (similar to a 401(k)), you can pay in through salary sacrifice, where the salary your tax is calculated on is reduced and the difference paid directly into the pension scheme.
Whichever route is taken, the end result is the same: a £100 contribution cost you £100 in pre-tax money.
I'm one of the somewhat lucky ones - I file a Form 1040EZ. It's pretty simple. Fill in the boxes, do a bit of really simple math, and sign on the dotted line. My state, New Jersey, does free online filing as well.
There is a silver lining to everything. US tax filing isn't completely bad.
I think there are some people who just automatically respond with that to any criticism of US public services, even where it's nonsensical (if the point of comparison is a country with a larger percentage of people born elsewhere than the US, say).
"Hey, we here at The Government would like to make your experience paying taxes less painful.
Hence forth, we're just going to take whatever amount we think is accurate, and you don't have to do anything!
Just trust us!"
Politely sir, take one giant step back from that and your beachfront property in Arizona, and diddle your own face.
Now, serious answer? Because EVERYTHING about the US Government is intentionally designed to be slow, cumbersome and painful, SPECIFICALLY to limit the amount of damage government institutions can cause to the country.
There's zero correlation between efficient taxing and corrupt governments.
The "we want to break government so that people don't trust it" shit doesn't make sense. Why not opt for a good government that you can reasonably trust, and do away with the anxiety and potential harm a shitty government causes?
It's like saying you don't wear your seatbelt because the fear of dying makes you drive more carefully.
They can, but the goal is to make people hate said institutions so much that they elect people who limit the institutions power to the absolute minimum necessary.
Inefficient institutions cause lots of small pains, extremely efficient, overly powerful ones nationalize your oil and gas industry because they can.
I'm not sure why other people in this thread think this is crazy. This is actually a widely held belief by Republicans. Many of them want paying taxes to be hard so people will be conscious of government burden. They believe making tax filing simple is a risk to our liberties.
Paying tax is very simple in Ireland (the average person rarely has to interact with the revenue service, certainly not every year), but no-one really _likes_ paying tax, all the same. This idea that people wouldn't notice if it was easy seems silly; they still see it coming out of their salary.
I have read about this before, but it still sounds totally crazy to me. There have been plenty of inefficient and corrupt governments which still have managed to impose police states. To me it seems like a cult of personality for the leader is a greater threat to your liberty than efficient bureaucracy.
I guess this boils down to philosophical differences in the role of government. One side believes that greater taxation leads to a larger role of government in society and results in the erosion of personal liberties. They are afraid that making filing taxes easier could continue this trend. I don't think this has anything to do with efficient bureaucracy and cult of personalities. The discussion on if government is ever able to be an efficient participant of all parts of society that it involves itself in is always up for debate. One fundamental reason for this belief is that government can not be the best solution to many of societies issues because the incentives on individuals in government, government bureaucracies and the public are so misaligned.
I spent $3k this year on accountant time to file my personal taxes. The majority of the cost is driven by my various extracurricular activities. In the five years where I did my own taxes as a self-employed person, I generally lost between 2 and 5 working days a year to the effort, largely driven by the "calculate the income and expenses of your self-employed business" part of the return.
A Japanese corporation with one employee is in for about ~$5k a year of professional services fees incident to managing payroll for that single employee, not counting the taxes themselves. (I personally can't wait until this space gets Gusto-ed here, and SmartHr and other companies are starting to get there.)