Now that most of us will have more time on our hands with the Great Migration happening on February 21, 2017, the question arises as to how to fill the void.
Here our dear Uncle Sam comes to the rescue and offers the opportunity to get a start on tax season. This year the filing deadline is Tuesday, April 18, 2017, owing to a provision in the law which states that Emancipation Day which is a holiday in Washington DC extends the filing deadline by one business day.
As we turn to the mind-numbing but necessary task of filling out our forms I was wondering what it is that upsets people the most about the tax filing system (I am not talking about the taxes themselves just the process of reporting them)
There are 3 things that really bother me:
First, I cannot understand why it is necessary to report most items such as information on W-2 forms, interest, and dividends, stocks sales, mortgage interest etc. All of this information is already reported by a third party to the IRS and if your report differs from what the third party reports then you can expect to hear from the helpful officials at the IRS.
Second, the IRS oversees the most complex set of rules for personal taxation in the world. It has spent billions of our dollars building a system to manage reporting under these rules. So it has the software needed to correctly produce any return no matter how complex. Why does it not make that software available to us to do our taxes?
Third, IRS is committed (or so it says) to customer support {seemingly we are customers whether we wish to be or not}. However, their “support” comes with two caveats. The first caveat is that the IRS takes no responsibility for the accuracy of advice provided to taxpayers. Following exactly what you were told by the IRS does not mean the IRS may not come after you if it decides you were given wrong advice by its agents. Second, customer support only deals with “simple” issues. I found this out when helping a family member who resides abroad and thus has a more complicated return than most of us. When I was unable to determine how a particular item should be treated I called the IRS and asked for advice. The friendly voice on the phone listened politely, informed me that it was indeed a complicated matter and that if I wanted to know the answer that I should contact “my tax advisor.” Of course, if I had a "tax advisor" I would not be calling the IRS in the first place.
Yes. Filing our tax return should be a relatively simple matter for all intents and purposes, except for one ludicrous absurdity. A few years ago we received stocks for a company that was a spinoff from Verizon, and for the past few years that company has reported to us and the IRS that they paid out $3 dollars or so to us in something called "nondividend distributions". This $3 requires that we fill out several worksheets and forms no different than a person who received $300,000,000 in "nondividend distributions". Now the $3 dollars makes absolutely no difference in the resulting tax figures; yet we are required to perform this time consuming process anyways. This is but one absurd example, but you can bet there are more. Fortunately, this year the company in question somehow changed the process, whereby we will no longer have to report this miniscule amount on our tax return. Does this give cause for optimism? No.:unsure:
Oh, I just remembered another incident dealing with IRS inefficiency: many, many years ago I was in the US Army, and about 4 years after I was discharged, I received a notice from the IRS saying I owed them $6in back taxes for my last year in the Army, where I had been in another country for the entire year. I wrote the IRS, telling them that I did not owe them anything based upon my records for that year. So I did not hear from them for a few years and considered the matter closed. But I heard from them a few years later saying that I now owed them something like $ 10 dollars due to penalties. I wrote them again with same message. This back and forth went on for about 25 years, while I filed tax returns every year, until they finally took $24 or so dollars out of my paycheck. I wrote them back stating that this whole process had wasted the taxpayers money and time and that I was going to tell this story to a news outlet and possibly take it to small claims court. Lo and behold, not long thereafter I received a refund check from the IRS for the amount taken out of my paycheck. Absurd, yes. True story, yes.
I think you are right--the IRS is simply the meat in the sandwich and just implements what is enacted.
The April/November date problem is a real issue. After seeing you post I submitted a ticket to RingPlus on the matter but do not expect to hear back quickly. I chatted with the IRS and was told it is not a "simple" matter and I need to discuss it with my "tax advisor."
On a more serious note, I have a friend who has worked for years on the TuboTax forum helping people with filing questions and I asked why the IRS requires reporting of information provided by third parties--he could not think of any sensible reason other than that it was done that way before computers were common and nobody bothered to change it.
That actually makes sense since the burden of that absurdity is not borne by the IRS but by the taxpayer.
For many if not most "normal" taxpayers it is likely the IRS has all the information needed without the taxpayer doing anything at all. If such taxpayers did not have to file, much of the fraud around refunds would simply not be possible.
In the uk the taxes are mostly automated via the payroll system and most people don't file a tax return at all. Obviously those with self employment or other more complicated affairs have to but it is a whole lot easier for everyone.
The Us is also the only (or one of the few?) who taxes on citizenship so citizens have to pay us taxes wherever the live unlike the rest of the world.
Then there is the fact as a resident alien I am in the US paying taxes without representation. The irony. Maybe 'Trump' would never have become president if the aliens got to vote.
Don't forget though that we have state and federal tax requirements here. At least here in CA, it's just a few adjustments to go from Federal to State although they're not nice adjustments.
But yes, the UK is far simpler, well put together and not adversarial either. Not just payroll but dividends and interest are automated.
Actually the issue is not technically being a resident alien but rather income arising in the US.
For a while I used to assist a family member who was not a US citizen and had never lived in the US with tax issues. Her husband had been a US citizen and lived with her until his death in Europe. It was an absolute nightmare filling out the forms.
As to your not having representation, US citizens living in Washington DC do not either and in fact have this as a slogan on their tags. There is a non-voting Representative in the House for DC.
I have not had a reason to look at this issue in a number of years but there used to be very serious problem for resident/non-resident aliens in relation to estate duties. If fact it was imperative for those married to US citizens to have a revocable trust in place. These are not cheap to set up and can be hassle to manage.
In addition to taxing worldwide income of its citizens the US tax code has some deterrent provisions for those who choose to renounce citizenship.
I became quite familiar with this issue while helping the a relative who is a US citizen by birth but has never lived in the US and never will and was very frustrated with the requirement and complexity of filing a US tax return every year. That person worked part of the year in 3 separate European countries and filing out the US tax return correctly to deal with this was beyond crazy.
I will say this--while the US tax system is undoubtedly the daftest one ever created by any nation, the actual tax code itself is remarkably well done. If one is willing it is possible to figure it out and get even the most complex return filed properly.
To me, the US tax system is a paragon of excellence in how it is actually administered. Of course, no nation that was not totally insane would ever create such a system in the first place,:lol:
I assume you mean that you do not like the result of making the adjustments from the the Federal return to the State return. The actual mechanics are pretty simple and packages such as TurboTax make it a piece of cake.
Your comment on Germany surprised me since the widowed relative I mentioned above lives there. She has always maintained that dealing with taxes there is very simple and whenever an issue arose, as it did from time to time because her husband was American, she would just pop into the local tax office and sit down with the official concerned and resolve it.
Good luck trying to do that with your friendly IRS agent.
By the way, any idea why it is called the IRS since it deals with worldwide tax issues?
As far as I know there is no External Revenue Service counterpart.
Well not exactly either. As there are still reporting requirements for income not arising in the US even if they are exempted in some way.
"U.S. resident aliens are generally taxed in the same way as U.S. citizens. This means that their worldwide income is subject to U.S. tax and must be reported on their U.S. tax return."
I think you have to be very wealthy for it to be an issue now since anyone gets the personal exemption of $5.5ish million even though the marital exemption does not apply to non citizens.
If this is not the case please do enlighten me as I am married to a citizen!
I used to know this stuff very well but it has been a long time since I actually used and will need to dig into what the current rules are.
The issue used to be complicated by the date on which one became a Permanent Resident in a given year and the Substantial Presence, and Closer Connection Test.
The rules for income tax purposes were different than for estate purposes.
That was literally a disaster for anyone who was not a US citizen--it did not matter whether you were a Permanent Resident or not .
The way it used to work was the exemption for a spouse who was not a US citizen was limited to $50,000.
I know some people who got caught up in that mess. Take for example a case where one was married to a US citizen and that person died. If the other spouse was a US citizen then the unlimited marital deduction applied. However, if not, even if the surviving spouse was a Permanent Resident then anything above $50,000 was taxed.
The last time I had a reason to look into this was 4 years ago and at that point the standard advice was still to have a revocable trust if one were not a US citizen but married to one. The problem was (and may still be) only for the not-citizen spouse and was addressed with the standard A/B trust technique.
Let me look it up when I get some time and give an update.
Yes it isn't as big a deal any more as there is a $5.5m exemption that does apply as also mentioned in this article. I doubt I will come close to that in my lifetime!
When I lived in Pennsylvania, the tax form was one side of a postcard. How much did you make? Please multiply that by 0.02 (or something like that), and make sure you paid us that much.
My federal taxes are as thick as a phone book and I have to pay a CPA $1500/yr to do them. I'm a pretty smart business person with an engineering degree and who was only two classes short of a math degree, and not only am I incapable of doing my own taxes-- I don't even understand my taxes after someone else does them for me.
That's ridiculous.
And when I hear, "You didn't build this," I want to scream out that I'm still in business DESPITE the government, not because of it. [/rant]
What you say is absolutely correct--taxes are very complicated and make no sense on the surface.
By that I mean , if somebody were tasked with producing a tax system from scratch, there is nobody on earth who would come up with this mess.
So why does it happen that way?
The answer is simple--lobbyists.
Take traders for instance who perform countless trades every year and who have managed to set a special deal all for themselves. If they trade in futures (which they all do) there is a special rate that applies. Even if you hold a position for an instant the 60/40 rule applies where 60% of any profit is taxed at long term capital gains rates and the rest at 40%. Not only is this unfair it also makes no sense whatever.
Every "group" in the nation has arranged for similar "breaks" for its members. At the state level the 'special" treatment can be also very complicated.
Properly coding all of this results in forms nobody except CPA, tax attorneys, and Enrolled Agents are able to follow.
Even if an intrepid soul could make it all the way through the standard system, it would be a very rare bird indeed who could make head or tail of the AMT--it is beyond incomprehensible.
I do not think the problem is really the "government" as such but rather our fellow citizens who feel they have a special "case" for preferential treatment.
Once you are a member of a reasonably sized group who "feels" that way, you will always find a sympathetic politician (or a rival candidate) who will listen. Some day that person's vote will be important to party leaders to get a piece of legislation passed and in return....
That is why we have this mess and also why it is so hard to fix it.
Yes it's the people's fault but it's also the fault of the system of federal representation and government that we live by. The founding father's of course never envisioned how the country would develop while the system stayed the same. As with healthcare, as a country, we're probably not mature enough to fix it.
I think it is just the butcher, the baker and the candlestick maker all doing their own thing.
What is the last thing anyone wants?
To be in a market where you are simply a price taker which is exactly what Joe Taxpayer is.
So if you are smart you get together with your buddies and arrange for a special 10 year average rule if you are a farmer, a special treatment of earnings if you are a fisherman, partial exemption or lower rates of taxation on pension income if you are a public sector employee (even though most private sector workers to not even get pensions anymore), 1031 Exchanges if you are a dealer in property, additional allowances if you are a senior citizen (although wealth is disproportionately concentrated in that group) etc, etc.
Naturally, your friendly "representative" will find time to listen to your concerns, after all the citizens as a whole seem generally uninterested in these specifics and only want overall taxes lowered (while simultaneously wanting more services and the debt reduced of course:) ).
In taxes, going the extra mile and organizing does work--you end up with a group discount on the regular price which once enacted is almost impossible to rescind.
The US tax system is a great example of what happens when everybody looks out for his/her own best interests and government is involved in the mix.
I had lunch yesterday with a friend who had just filed his taxes. He noted that in the case of both the Federal and State returns he received an notification that the returns had been accepted far more rapidly than in earlier years.
Then he started complaining about the fact that the total paid was higher than the previous year.
I asked if his after tax income for 2016 was higher than in 2015 and if so why was he unhappy?
The response I got was yes it was higher but that one should not be expected to be logical then talking about taxes.
So the valuable take away was not merely is there is a problem with the insanity of the tax system, there would seem to be an issue with the sanity of at least some taxpayers as well.
As a punishment for my stupidity in introducing logic into the discussion, I ended up with the bill for both lunches.!
If you are still working on getting your annual report for Uncle Sam (and his many needy state and local relatives) ready for tomorrow, there is a bright spot in the darkness, assuming you like free cookies.
Other "tax day" specials below:
A just-released survey provides a glimpse into how strongly taxpayers feel about taxes as well as how uninformed they are about the realities of the Federal tax system.
In probably the only area in which there is a strong national consensus, 90% believe taxes are "too complicated." The fact that this means representative government is working exactly as intended appears to be less well understood.
