IRS Free File is now available for the 2024 filing season(irs.gov)
irs.gov
IRS Free File is now available for the 2024 filing season
https://www.irs.gov/newsroom/irs-free-file-is-now-available-for-the-2024-filing-season
172 comments
Why is there an income limit? There would be plenty of simple returns from people with a high income with just a single w2 taking a standard deduction
Also note, this is simply the Federal Tax Return.
For no limit IRS Free File, just use FreeTaxUSA[1]. Not only will it be better quality than whatever the IRS/Gov has turned out, not only is it Free (as-in Beer for IRS Filing), but it also offers very cheap State Filing options ($15).
Just use FreeTaxUSA...
[1] https://www.freetaxusa.com/pricing
For no limit IRS Free File, just use FreeTaxUSA[1]. Not only will it be better quality than whatever the IRS/Gov has turned out, not only is it Free (as-in Beer for IRS Filing), but it also offers very cheap State Filing options ($15).
Just use FreeTaxUSA...
[1] https://www.freetaxusa.com/pricing
Using the IRS' option (Direct File) [1] [2], if able, shows uptake, which will be used to gauge success and continued operation and improvement. If you can use it, you should. It is how for profit tax prep gets driven to the margins, and is eventually sunset (except for perhaps the most complex returns).
> Just use FreeTaxUSA...
That is how the status quo remains. Hasn't served us well to be honest. Of course, use FreeTaxUSA to avoid paid options if you don't fall into the IRS pilot criteria. But if you fall into the criteria, please consider participating.
[1] https://www.irs.gov/about-irs/strategic-plan/direct-file
[2] https://www.irs.gov/about-irs/a-closer-look-at-the-irs-direc...
(i want my tax filing provided by the IRS directly, and as frictionless as possible; ymmv)
> Just use FreeTaxUSA...
That is how the status quo remains. Hasn't served us well to be honest. Of course, use FreeTaxUSA to avoid paid options if you don't fall into the IRS pilot criteria. But if you fall into the criteria, please consider participating.
[1] https://www.irs.gov/about-irs/strategic-plan/direct-file
[2] https://www.irs.gov/about-irs/a-closer-look-at-the-irs-direc...
(i want my tax filing provided by the IRS directly, and as frictionless as possible; ymmv)
> Using the IRS' option, if able, shows uptake, which will be used to gauge success and continued operation and improvement. If you can use it, you should. It is how for profit tax prep gets driven to the margins, and is eventually sunset (except for perhaps the most complex returns).
FreeTaxUSA is part of the IRS' free filing program, except it exceeds the IRS standards by offering free Federal Filing for any AGI... no maximum.
FreeTaxUSA is already marginalizing tax filing software. It cannot get cheaper than free. Additionally, they're the cheapest/easiest State Filing system I am aware of.
> > Just use FreeTaxUSA...
> That is how the status quo remains. Hasn't done very well for us tbh.
This is exactly how the status quo is destroyed. FreeTaxUSA provides the same outcome as vastly more expensive software and/or tax preparation services, at no cost to you for Federal Returns.
FreeTaxUSA is part of the IRS' free filing program, except it exceeds the IRS standards by offering free Federal Filing for any AGI... no maximum.
FreeTaxUSA is already marginalizing tax filing software. It cannot get cheaper than free. Additionally, they're the cheapest/easiest State Filing system I am aware of.
> > Just use FreeTaxUSA...
> That is how the status quo remains. Hasn't done very well for us tbh.
This is exactly how the status quo is destroyed. FreeTaxUSA provides the same outcome as vastly more expensive software and/or tax preparation services, at no cost to you for Federal Returns.
We're simply at an impasse because you prefer the non government option, and I expect my government to provide it.
I don't believe you actually are aware of what you are talking about. There is no government option currently, except manually filling out forms.
Furthermore, it is naïve to believe the government will provide better service and/or usability than a private organization who's entire existence and purpose is to make submitting tax returns easy.
Furthermore, it is naïve to believe the government will provide better service and/or usability than a private organization who's entire existence and purpose is to make submitting tax returns easy.
Unless they edited, they're talking about Direct File and not Free File. The former IS a software provided by the government.
https://www.irs.gov/about-irs/a-closer-look-at-the-irs-direc...
https://www.irs.gov/about-irs/a-closer-look-at-the-irs-direc...
> Unless they edited
Yes, they have edited their comment since my response.
Even still, Direct File is a joke. Available in only 12 states, and excludes anyone with business income, "gig economy" income, itemization, retirement/savings credit, and childcare credits.
It also does not cover state filing either... so you get to experience the joy of doing your taxes twice.
It simply does not compare with FreeTaxUSA, or even paid offerings.
https://www.irs.gov/about-irs/strategic-plan/direct-file
Yes, they have edited their comment since my response.
Even still, Direct File is a joke. Available in only 12 states, and excludes anyone with business income, "gig economy" income, itemization, retirement/savings credit, and childcare credits.
It also does not cover state filing either... so you get to experience the joy of doing your taxes twice.
It simply does not compare with FreeTaxUSA, or even paid offerings.
https://www.irs.gov/about-irs/strategic-plan/direct-file
It’s a pilot. Nothing big can change except via incremental steps.
It's the federal tax return - limiting it to 12 states makes zero sense...
IRS Direct File is tax filing software created by the IRS - by the government. That is the government option.
[deleted]
> There is no government option currently
There's the IRS Direct File pilot that is being talked about ...
There's the IRS Direct File pilot that is being talked about ...
From your first link:
> The Direct File pilot will be available to eligible participants in these states:
> Arizona
> California
> Florida
> Massachusetts
> Nevada
> New Hampshire
> New York
> South Dakota
> Tennessee
> Texas
> Washington state
> Wyoming
> The pilot is not an option for you if you did not live in one of the 12 participating states in 2023.
Cali, Texas, Florida, and New York are some of the biggest states, but most Americans aren't eligible.
> The Direct File pilot will be available to eligible participants in these states:
> Arizona
> California
> Florida
> Massachusetts
> Nevada
> New Hampshire
> New York
> South Dakota
> Tennessee
> Texas
> Washington state
> Wyoming
> The pilot is not an option for you if you did not live in one of the 12 participating states in 2023.
Cali, Texas, Florida, and New York are some of the biggest states, but most Americans aren't eligible.
~145M potential taxpayers across the states you list is a fine pilot program population to start with (out of 331M people in country). Walk, then run. As your pilot moves into a fully operationalized state, you then have customer support and engineering capacity to work out edge cases. I don't see a problem; I see the beginning of success. You have to start somewhere.
https://en.wikipedia.org/wiki/List_of_U.S._states_and_territ...
https://en.wikipedia.org/wiki/List_of_U.S._states_and_territ...
I thought one of the reasons for this was more about state tax models, moreso than anything else.
The only thing keeping me from using FreeTaxUSA is its inability to import brokerage transactions/1099-Bs. As far as I'm aware, if you input 1099-B summaries (as opposed to individual transactions), you have to mail physical copies of all 1099s to the IRS.
I just completed my filing with FreeTaxUSA yesterday.
Which included 1099-B, because I got RSUs and sold them.
I manually entered the info about stock sale. And the end, the webapp told me, that IRS requires the copy of 1099-B, so I need to upload it. I uploaded PDF, which I got from Fidelity. That's it.
Which included 1099-B, because I got RSUs and sold them.
I manually entered the info about stock sale. And the end, the webapp told me, that IRS requires the copy of 1099-B, so I need to upload it. I uploaded PDF, which I got from Fidelity. That's it.
You can attach pdfs of brokerage transactions to your e-filed return (and FreeTaxUSA prompts you to do so in the filing section)
IIRC, you can now attach electronic copies of your brokerage statements to your return instead of mailing it to the IRS. I believe it changed for the 2022 tax year, I did have to mail in my complete 1099-B with transaction history in 2021 and before.
[deleted]
You essentially only have to mail physical copies of your transaction histories if you had wash sales. (I'm not your lawyer tho)
For this sort of thing, I would rather use a .gov website than a .com.
There are many folks who reflexively append .com to everything. Even if it redirects to .gov someday, depriving fraudsters of the .com is absolutely worthwhile.
My email address is [email protected]. The amount of times I've dealt with customer service... "We have your email address as [email protected]" or similar is notable.
I have [email protected] (younger me got swept up when .io was a big thing). Customer service gets confused, but also occasionally websites will tell me it's not a valid domain and I have to fall back to Gmail.
Couldn't agree more. I used it last year and it was awesome (I didn't find any feature missing). In any case, it's one of the "IRS Free File participants" according to the OPs link.
> In any case, it's one of the "IRS Free File participants" according to the OPs link.
Indeed, but without the $79,000 AGI maximum.
Indeed, but without the $79,000 AGI maximum.
Yeah, I've used this for the past couple of years and will do so again this year. It's solid.
I've been using them for a couple of years for now and I think they're awesome!
The original intent of the program seems to be a quid pro quo, where the IRS promises a non-compete with the tax preparation industry [1] in exchange for free federal tax prep for 70% of U.S. taxpayers [2].
As of 2019-12-26, the IRS no longer promises the non-compete [3], perhaps so it could start the Direct File pilot [4].
---
[1]: From the summary of the proposed original agreement at https://www.federalregister.gov/documents/2002/08/08/02-1983...:
> The Consortium will offer Free Services to taxpayers at no cost. [...] During the term of the Agreement, the IRS will not compete with the Consortium in providing free, online tax return preparation and filing services to taxpayers.
[2]: "70%" source: see 4.1.3(i) of latest MOU: https://www.irs.gov/pub/irs-efile/ninth-memorandum-of-unders...
+info: https://www.irs.gov/e-file-providers/about-the-free-file-all...
[3]: Point (ii) of https://www.irs.gov/pub/irs-utl/FFI%20Signed%20MOU%20Addendu...
[4]: https://www.irs.gov/about-irs/strategic-plan/direct-file
see also: https://news.ycombinator.com/item?id=37920633
As of 2019-12-26, the IRS no longer promises the non-compete [3], perhaps so it could start the Direct File pilot [4].
---
[1]: From the summary of the proposed original agreement at https://www.federalregister.gov/documents/2002/08/08/02-1983...:
> The Consortium will offer Free Services to taxpayers at no cost. [...] During the term of the Agreement, the IRS will not compete with the Consortium in providing free, online tax return preparation and filing services to taxpayers.
[2]: "70%" source: see 4.1.3(i) of latest MOU: https://www.irs.gov/pub/irs-efile/ninth-memorandum-of-unders...
+info: https://www.irs.gov/e-file-providers/about-the-free-file-all...
[3]: Point (ii) of https://www.irs.gov/pub/irs-utl/FFI%20Signed%20MOU%20Addendu...
[4]: https://www.irs.gov/about-irs/strategic-plan/direct-file
see also: https://news.ycombinator.com/item?id=37920633
Is this meant to reply to a different comment?
Sorry I was unclear. I was trying to speculate on the question, "Why is there an income limit?".
Before digging into this, I thought the IRS set the income limit. (e.g. "We the IRS want all people earning less than $65k to have free tax prep.")
It appears it was the other way around: the memos show the IRS sets the % of the population it wants to have free tax prep services (70%), and the FreeFile income limits are calculated so in theory only the highest (30%) of incomes must pay for tax prep.
So I speculate that the answer to "Why is there an income limit?” may be "It was part of an attempt between the IRS and the private sector to have the richest 30% subsidize everyone else's tax prep."
Before digging into this, I thought the IRS set the income limit. (e.g. "We the IRS want all people earning less than $65k to have free tax prep.")
It appears it was the other way around: the memos show the IRS sets the % of the population it wants to have free tax prep services (70%), and the FreeFile income limits are calculated so in theory only the highest (30%) of incomes must pay for tax prep.
So I speculate that the answer to "Why is there an income limit?” may be "It was part of an attempt between the IRS and the private sector to have the richest 30% subsidize everyone else's tax prep."
This is free filing with "trusted partners," but the IRS also has their Free File Fillable Forms (not open yet) which have no income limit. The UI is a little rough, but matches the official IRS forms.
I got mad enough paying H&R Block a couple years ago and decided to download the fillable PDFs and do it manually. It was a good learning experience. Since I'm filling out the PDF forms anyway I wish I could just upload those to FFFF, instead of having to re-enter everything manually.
Still it's better than my state (Indiana) where I can't file online without a third party. It does bring me some satisfaction that I fill out the PDF forms, print them, mail them to the state, and someone gets to (probably) type it all back in to a computer. Efficient.
I got mad enough paying H&R Block a couple years ago and decided to download the fillable PDFs and do it manually. It was a good learning experience. Since I'm filling out the PDF forms anyway I wish I could just upload those to FFFF, instead of having to re-enter everything manually.
Still it's better than my state (Indiana) where I can't file online without a third party. It does bring me some satisfaction that I fill out the PDF forms, print them, mail them to the state, and someone gets to (probably) type it all back in to a computer. Efficient.
I've been using free fillable forms for years. Luckily my state also uses them. One year they didn't and I filed paper (by filling out PDFs, as well), and wrote a letter to the department of revenue promising to file paper returns every year they didn't have a free efile option.
And the next year they brought it back. Because of me, I'm sure. ;)
But until the IRS has full service online, I'm not paying a third party out of principle. The only time I shell out is if it gets too complex, and then I pay an accountant.
And the next year they brought it back. Because of me, I'm sure. ;)
But until the IRS has full service online, I'm not paying a third party out of principle. The only time I shell out is if it gets too complex, and then I pay an accountant.
Because Intuit Turbotax lobbyists take congressmembers out on their yachts, and our representatives aren't interested in saving the country's citizens money
I think it's more like that 50% of representatives think that taxes shouldn't exist, so by making taxes an annual pain point, they are increasing their own support. "If it wasn't for That Other Party we wouldn't have you paying $39 to Intuit every year, but that's all they do, subsidize Big Tech with your Personal Information."
Turns out it's all of the above
It's a coalition with more support than either of you think!
Because the tax preparation services lobbied the federal government to make it illegal for the US government to offer its own filing service.
I like 1040now.net. The UI is atrocious but it basically just offers an HTML version of the actual IRS forms. If all you need is a 1040 and a W2, then you just fill those out and skip the rest of the forms. I've been using it for several years. It costs $20 to file your federal returns if you make more than a certain amount, and it also offers State tax filing as well
I like 1040now.net. The UI is atrocious but it basically just offers an HTML version of the actual IRS forms. If all you need is a 1040 and a W2, then you just fill those out and skip the rest of the forms. I've been using it for several years. It costs $20 to file your federal returns if you make more than a certain amount, and it also offers State tax filing as well
If you just have W2 income, there's no reason you can't fill out the regular 1040 form yourself. Sure might take you an hour or so, but no software to purchase. Just costs a stamp to mail it in!
Just a caveat: in 2020, processing paper returns was considerably more delayed than digital submissions. If you want your return to be processed quickly, digital is almost always faster.
https://www.gao.gov/blog/more-delays-ahead-pandemic-continue...
https://www.gao.gov/blog/more-delays-ahead-pandemic-continue...
I have a form telling me about the interest the IRS sent me because amendments to forms are almost always paper-sent, and it took so long to process my additional return that they owed interest on it.
If this makes a difference to you then you should adjust your withholding so you get less back. There are better ways to save than a tax refund.
The online forms don't have an income limit, so you don't even need a stamp.
I agree, but instead of paper, use the free file fillable forms the IRS provides to submit it digitally. Link will be up here in a few days: https://www.irs.gov/e-file-providers/free-file-fillable-form...
This is true. The thing that most people won't appreciate is that taxes that are not done online are processed at a very slow pace. Most people don't try to optimize their withholding in a way to get close to 0 tax returns and won't be willing to wait long times to get any kind of returns. We all are paying cost of capitalism.
It seems odd to be willing to give the government a loan over the course of the year, in the form of overwithholding, but then not be willing to wait a few more weeks to get the payout. If somebody is impatient to get their hands on that money, why not fix their W-4 so they get it with every paycheck?
(Also, as noted in the parallel comment, the forms can be submitted online, separately from the Free File service)
(Also, as noted in the parallel comment, the forms can be submitted online, separately from the Free File service)
Well most people are just not literate when it comes to finances. They are not aware of what withholding means, how to calculate things. I'm sure it's not simple to do when you are working multiple jobs, or temp jobs in between (well these won't be those simple W 2 scenarios we are talking about).
We are know that the tax codes are intentionally complicated and big firms don't want government to fix them. Rules being complected allows having loopholes for certain people.
We are know that the tax codes are intentionally complicated and big firms don't want government to fix them. Rules being complected allows having loopholes for certain people.
I think we’re talking about different, related things.
The tax code in the US (and the filing process) is overcomplicated for a variety of political, corporate, and cultural reasons.
The average US taxpayer is under-educated on finances generally and tax code specifically.
That said, the W-4 is one area that’s actually gotten simpler in recent years. I simultaneously think the tax code needs serious simplification and that the average person has the capacity to read a W-4 and get reasonably close on their withholding. The reason many of them don’t is because they like getting a refund check once a year.
The tax code in the US (and the filing process) is overcomplicated for a variety of political, corporate, and cultural reasons.
The average US taxpayer is under-educated on finances generally and tax code specifically.
That said, the W-4 is one area that’s actually gotten simpler in recent years. I simultaneously think the tax code needs serious simplification and that the average person has the capacity to read a W-4 and get reasonably close on their withholding. The reason many of them don’t is because they like getting a refund check once a year.
Government: creates a byzantine tax code to allow the richest/most competent avoiders keep their wealth while consistently over-targeting lower-income groups for audits
For profit tax-co’s: do back door deals with the government to prevent lower-income/competence individuals from working directly with the gov’t while engaging in dark patterns to make the lower cost products harder to use/find
This guy: It’s the citizen’s fault and they get what they deserve for having other priorities than wealth management!
I think it’s fair to assume that all users want taxation to be as close to 0 overage as possible while also wanting all overage returned as quickly as possible. Anyone not working towards that sucks and is the universal enemy.
For profit tax-co’s: do back door deals with the government to prevent lower-income/competence individuals from working directly with the gov’t while engaging in dark patterns to make the lower cost products harder to use/find
This guy: It’s the citizen’s fault and they get what they deserve for having other priorities than wealth management!
I think it’s fair to assume that all users want taxation to be as close to 0 overage as possible while also wanting all overage returned as quickly as possible. Anyone not working towards that sucks and is the universal enemy.
I’m not sure what you’re talking about.
I know plenty of people who do not want their tax return to be close to zero. They like getting a big refund check back. This is the kind of person being described in the comment I replied to.
I know plenty of people who do not want their tax return to be close to zero. They like getting a big refund check back. This is the kind of person being described in the comment I replied to.
There's a whole cottage industry painting refunds and spending them as a windfall and a good thing.
I have seen some people on reddit admit that they are bad at managing finances month to month and would rather have that big refund come back that they can use to pay off debt or something. I know it sounds counter intuitive, but whatever works for individuals man.
I doubt the cottage industry is focused on debt reduction. That said, forced savings techniques can certainly make a lot of sense even if they're financially suboptimal.
If you only have income from one W-2, two if you are married, yes it is easy. But if you have any variability in your income, it's hard to predict how much you tax you are going to owe. Not every income supports withholding (i.e. savings accounts) and the way you can set withholding varies by income source (W-2 supports a dollar amount per paycheck, RSUs often use a percentage). So getting the right combination of withholding settings to cover your tax liability across all income sources can be tricky.
The overwhelming majority of US taxpayers do not have RSUs or enough savings for a 1099-INT to impact their taxes.
[deleted]
If I don't get the refund quickly, I don't trust that I'll get it ever. Things can fall through the cracks, and support dwindles for older tax returns.
I've used Cash App Taxes (previously owned by Credit Karma) for several years. No income limit and free state taxes as well: https://cash.app/taxes
Because TurboTax and H&R Block need that corporate welfare check from the government in order to survive.
To pop up Intuit, makers of Turbo Tax. Lower income people are still more likely to go to a tax preparer service than to attempt to file their own. The idea of doing your own taxes is a middle class and up ideal, or those who are more likely to have the education and training to do their own taxes.
AIUI, this is the result as a compromise. Instead of the IRS creating its own free tax prep software, the existing tax prep industry had to make their offerings free for people under a certain income threshold.
Of course, the tax prep industry engaged in all sorts of dark patterns to make actually obtaining the legally-required-to-be-free software for free as difficult as possible, so the IRS is now working on its own free tax prep software (which is the Direct File system, not the Free File system).
Of course, the tax prep industry engaged in all sorts of dark patterns to make actually obtaining the legally-required-to-be-free software for free as difficult as possible, so the IRS is now working on its own free tax prep software (which is the Direct File system, not the Free File system).
> There would be plenty of simple returns from people with a high income with just a single w2 taking a standard deduction
Probably the same reason large companies don't launch new features to their entire userbase all at once.
Probably the same reason large companies don't launch new features to their entire userbase all at once.
I suspect it’s more to ease into letting people file for free by cutting out “higher risk” filers. The income cap pretty much guarantees everyone filing falls into a simple class that doesn’t need itemized returns.
"Those with an AGI over the limit can still file their return for free using Free File Fillable Forms."
> adjusted gross income (AGI) of $79,000
everything about the IRS is a hint saying learn how to read our regulations to take more deductions
AGI is income after most deductions
I’ve had 7 figures of revenue before and would still be able to use this during that year
The President even sent me those one-off stimmies because my AGI was under the threshold
get your agi lower
everything about the IRS is a hint saying learn how to read our regulations to take more deductions
AGI is income after most deductions
I’ve had 7 figures of revenue before and would still be able to use this during that year
The President even sent me those one-off stimmies because my AGI was under the threshold
get your agi lower
>AGI is income after most deductions
No, it is not. As the name implies, it is gross income, adjusted for certain (but nowhere near most) deductions.
Itemized (or standard) deduction is subtracted from AGI to arrive at taxable income. Also, a temporary provision for something called QBI might be deducted from AGI to arrive at taxable income.
No, it is not. As the name implies, it is gross income, adjusted for certain (but nowhere near most) deductions.
Itemized (or standard) deduction is subtracted from AGI to arrive at taxable income. Also, a temporary provision for something called QBI might be deducted from AGI to arrive at taxable income.
given how many things can lower AGI from actual gross, this is splitting hairs simply over the word “most”. you can have negative AGI, this kind of adjusted gross is nowhere near actual gross.
What are some deductions that many of us would be missing?
I fill out my taxes and I never have enough deductions to itemize.
I fill out my taxes and I never have enough deductions to itemize.
A CPA friend of mine stated that software engineers are pretty screwed when it comes to taxes, they pay the highest effective rate. In effect, when you are in the $125k to $250k ballpark, you're at a high tax bracket but not making enough to take advantage of the things that allow (for example) Warren Buffet to have an effective tax rate of 11% [1]. So, in the shoes of a typical software engineer, their effective tax rate is ballpark 30~35% and their deductions are pretty minimal.
One example my CPA friend gave was landlords getting it good. They can both deduct depreciation and also repair costs - double dipping! Further, any interest on real estate loans they have are also tax deductible. I don't know of more specifics personally, the impression my friend gave me was that those examples are just the beginning.
[1] https://www.forbes.com/sites/janetnovack/2011/10/12/warren-b...
One example my CPA friend gave was landlords getting it good. They can both deduct depreciation and also repair costs - double dipping! Further, any interest on real estate loans they have are also tax deductible. I don't know of more specifics personally, the impression my friend gave me was that those examples are just the beginning.
[1] https://www.forbes.com/sites/janetnovack/2011/10/12/warren-b...
>They can both deduct depreciation and also repair costs - double dipping! Further, any interest on real estate loans they have are also tax deductible.
Either your CPA friend is ignorant (since after all not all CPAs specialize in income tax) or you misunderstood.
Depreciation is how the cost of placing a new asset in service is spread over time to match the income generated by the asset (roughly speaking). Repairs are the cost of keeping existing in-service assets in normal operating condition. There is no double dipping.
As for mortgage interest, only interest on the loans used to acquire or improve the property are deductible, not cash-out equity loans. This is basically the same rule that owners of their own principal residence get to use, although there are some temporary limits that can reduce the full deduction, especially for those in areas with expensive houses for sale.
Either your CPA friend is ignorant (since after all not all CPAs specialize in income tax) or you misunderstood.
Depreciation is how the cost of placing a new asset in service is spread over time to match the income generated by the asset (roughly speaking). Repairs are the cost of keeping existing in-service assets in normal operating condition. There is no double dipping.
As for mortgage interest, only interest on the loans used to acquire or improve the property are deductible, not cash-out equity loans. This is basically the same rule that owners of their own principal residence get to use, although there are some temporary limits that can reduce the full deduction, especially for those in areas with expensive houses for sale.
> Either your CPA friend is ignorant (since after all not all CPAs specialize in income tax) or you misunderstood.
I might have misunderstood, but he was keeping it simple for me. I'm 100% positive that he was correct though, to what angle - I'm not exactly sure.
After doing some more research on my own, I think the double-dipping stands. In essence it comes down to a statement like this: "my property is worth less year over year - look, the shingles are starting to come off! Oh, by the way, I spent $2000 fixing the shingles."
So, first, let's tackle depreciation. For rental, the entire property value depreciates and this is tax deductible. It's about 3% of the property value every year [2], regardless of any repairs. If there is an improvement made, that changes the cost basis [2, 4] which then changes the size of the pie where 3% is then taken out of that [2]. In essence, the IRS, per the tax code, essentially thinks that a rental property after 25 years will be worth nothing. To some extent, this makes some sense, appliances wear out, buildings do need maintenance and eventually they are re-modeled and re-done.
But, repairs & depreciation are mutually exclusive for the tax code, so long as that repair does not enter the 'improvement' territory. So, if you fix all of things that are depreciating, you still get to claim the depreciation overall, and you get to claim the repair costs of those depreciating items.
These are the resources I used:
[1] https://www.irs.gov/businesses/small-businesses-self-employe...
[2] https://www.investopedia.com/articles/investing/060815/how-r...
[3] https://www.nolo.com/legal-encyclopedia/tips-maximizing-repa...
[4] https://www.nolo.com/legal-encyclopedia/top-ten-tax-deductio...
[1] is interesting and has this key quote:
> You can deduct the costs of certain materials, supplies, repairs, and maintenance that you make to your rental property to keep your property in good operating condition
Note, it does not say "or" repairs, and that list does not include improvements. Basically this is to say, a $100,000 property after one year of renting, to the IRS is worth $97,000 - whether or not there was actually $3000 worth of wear and tear is immaterial, and if you spent $3000 to fix that wear and tear is also immaterial, you get to claim the depreciation and repairs both.
The [4] reference really emphasizes why land lords do not want to replace things, and instead will focus on repairs:
> Landlord Tax Deduction #3: Repairs A significant tax break for landlords can arise when they make repairs to their properties: The cost of repairs to rental property (provided the repairs are ordinary, necessary, and reasonable in amount) are fully deductible in the year in which they are incurred. Good examples of deductible repairs include repainting, fixing gutters or floors, fixing leaks, plastering, and replacing broken windows.
For some completeness, resource #4 addresses depreciation as the 2nd bullet point right before repairs:
> Landlord Tax Deduction #2: Depreciation for Rental Real Property The actual cost of a house, apartment building, or other rental property is not fully deductible in the year in which you pay for it. Instead, landlords get back the cost of real estate through depreciation. This involves deducting a portion of the cost of the property over several years (27.5 years for residential real property). Landlords can reap the benefits of depreciation even if the property increases in value.
Thus, my conclusion - if a person is fixing everything that is breaking and wearing out in a rental property - I don't see how exactly that property is depreciating by 3% every year. The depreciating things are getting fixed! I would call that double dipping. Reasonable people might still disagree.
Though, to the larger point, resource [4] has a section "Other Important Tax Tips for Landlords", reading through that list is a whole slew of things not available to W2 employees, eg: "A special tax rule permits some landlords to deduct 100% of their rental property losses every year, no matter how much." Taken in aggregate, tax-wise, it seems FAR better to be a landlord than a W2 employee. (A peer comment noted that 1099 get really great tax treatment, and that's basically the gist of it. If you can claim you are own your own boss - the tax breaks are huge, otherwise for the run-of-the-mill W2 - there are lot less tax breaks).
I might have misunderstood, but he was keeping it simple for me. I'm 100% positive that he was correct though, to what angle - I'm not exactly sure.
After doing some more research on my own, I think the double-dipping stands. In essence it comes down to a statement like this: "my property is worth less year over year - look, the shingles are starting to come off! Oh, by the way, I spent $2000 fixing the shingles."
So, first, let's tackle depreciation. For rental, the entire property value depreciates and this is tax deductible. It's about 3% of the property value every year [2], regardless of any repairs. If there is an improvement made, that changes the cost basis [2, 4] which then changes the size of the pie where 3% is then taken out of that [2]. In essence, the IRS, per the tax code, essentially thinks that a rental property after 25 years will be worth nothing. To some extent, this makes some sense, appliances wear out, buildings do need maintenance and eventually they are re-modeled and re-done.
But, repairs & depreciation are mutually exclusive for the tax code, so long as that repair does not enter the 'improvement' territory. So, if you fix all of things that are depreciating, you still get to claim the depreciation overall, and you get to claim the repair costs of those depreciating items.
These are the resources I used:
[1] https://www.irs.gov/businesses/small-businesses-self-employe...
[2] https://www.investopedia.com/articles/investing/060815/how-r...
[3] https://www.nolo.com/legal-encyclopedia/tips-maximizing-repa...
[4] https://www.nolo.com/legal-encyclopedia/top-ten-tax-deductio...
[1] is interesting and has this key quote:
> You can deduct the costs of certain materials, supplies, repairs, and maintenance that you make to your rental property to keep your property in good operating condition
Note, it does not say "or" repairs, and that list does not include improvements. Basically this is to say, a $100,000 property after one year of renting, to the IRS is worth $97,000 - whether or not there was actually $3000 worth of wear and tear is immaterial, and if you spent $3000 to fix that wear and tear is also immaterial, you get to claim the depreciation and repairs both.
The [4] reference really emphasizes why land lords do not want to replace things, and instead will focus on repairs:
> Landlord Tax Deduction #3: Repairs A significant tax break for landlords can arise when they make repairs to their properties: The cost of repairs to rental property (provided the repairs are ordinary, necessary, and reasonable in amount) are fully deductible in the year in which they are incurred. Good examples of deductible repairs include repainting, fixing gutters or floors, fixing leaks, plastering, and replacing broken windows.
For some completeness, resource #4 addresses depreciation as the 2nd bullet point right before repairs:
> Landlord Tax Deduction #2: Depreciation for Rental Real Property The actual cost of a house, apartment building, or other rental property is not fully deductible in the year in which you pay for it. Instead, landlords get back the cost of real estate through depreciation. This involves deducting a portion of the cost of the property over several years (27.5 years for residential real property). Landlords can reap the benefits of depreciation even if the property increases in value.
Thus, my conclusion - if a person is fixing everything that is breaking and wearing out in a rental property - I don't see how exactly that property is depreciating by 3% every year. The depreciating things are getting fixed! I would call that double dipping. Reasonable people might still disagree.
Though, to the larger point, resource [4] has a section "Other Important Tax Tips for Landlords", reading through that list is a whole slew of things not available to W2 employees, eg: "A special tax rule permits some landlords to deduct 100% of their rental property losses every year, no matter how much." Taken in aggregate, tax-wise, it seems FAR better to be a landlord than a W2 employee. (A peer comment noted that 1099 get really great tax treatment, and that's basically the gist of it. If you can claim you are own your own boss - the tax breaks are huge, otherwise for the run-of-the-mill W2 - there are lot less tax breaks).
I assume by "double dipping" you mean, deducting the same expenditure twice.
There still is no double dipping. If you buy a $100K asset, and over its depreciable life you also spend $15K on repairs, then you have spent $115K in total and you only deducted $115K, not a penny more -- so no double dipping. Also, FWIW, if you later sell the fully depreciated asset, the entire sale price is taxable income.
>A special tax rule permits some landlords to deduct 100% of their rental property losses every year, no matter how much.
Yes, if one qualifies as a "real estate professional" (not easy for anyone who is not a full-time landlord). However, a successful real estate professional is not going to stay in business long if they have large losses every year.
There still is no double dipping. If you buy a $100K asset, and over its depreciable life you also spend $15K on repairs, then you have spent $115K in total and you only deducted $115K, not a penny more -- so no double dipping. Also, FWIW, if you later sell the fully depreciated asset, the entire sale price is taxable income.
>A special tax rule permits some landlords to deduct 100% of their rental property losses every year, no matter how much.
Yes, if one qualifies as a "real estate professional" (not easy for anyone who is not a full-time landlord). However, a successful real estate professional is not going to stay in business long if they have large losses every year.
Thank you for the response. It is good context, and if I understand right it sounds like things even out if and when there is a sale.
I'm certainly somewhat cynical, IMO it is the rich that write the tax codes and laws... [1] I do wonder if the sale can be readily gamed. For example, do the sale after retirement, in a year where you have lots of stock losses from a recession or something.
Regardless, I appreciate the added context!
[1] https://www.thenation.com/article/society/cbo-american-wealt...
I'm certainly somewhat cynical, IMO it is the rich that write the tax codes and laws... [1] I do wonder if the sale can be readily gamed. For example, do the sale after retirement, in a year where you have lots of stock losses from a recession or something.
Regardless, I appreciate the added context!
[1] https://www.thenation.com/article/society/cbo-american-wealt...
You seem to be taking this all from the angle of a possible loophole. That's fine and all. But another way to look at it is:
Renting is a business. You can say let's tax gross income (and some places do that) but in general in the US only net income is taxed. That is income after costs. For renting there is the cost of the property, there is interest on various loans, there is the cost of maintenance and repairs, there is the cost of upgrades, there is utilities and local taxes, etc. For income there is the rent, and there is the proceeds from the sale of the property at the end, etc.
The cost of the property is a cost - that's hard to argue. The question would be how to take it into account. It's currently taken into account with depreciation (of the building, not the land for that matter.) A certain percentage every year goes against the income until it's fully depreciated. And then when the building is sold, the part of the cost that was depreciated is taxed (there is yet another calculation to decide at what rate it's taxed - depreciation reduced basis but "sale minus basis" does not necessarily get taxed at capital gains rate.)
The hows can get complicated but the general principle of "how to take into account the business costs" is pretty simple? And the building cost and maintenance are both costs. Doesn't really matter in there how long the building is supposed to last. It's a fairly arbitrary number in the calculation.
[If you do want to look at preferential treatment, you can look at "like kind exchange"]
Renting is a business. You can say let's tax gross income (and some places do that) but in general in the US only net income is taxed. That is income after costs. For renting there is the cost of the property, there is interest on various loans, there is the cost of maintenance and repairs, there is the cost of upgrades, there is utilities and local taxes, etc. For income there is the rent, and there is the proceeds from the sale of the property at the end, etc.
The cost of the property is a cost - that's hard to argue. The question would be how to take it into account. It's currently taken into account with depreciation (of the building, not the land for that matter.) A certain percentage every year goes against the income until it's fully depreciated. And then when the building is sold, the part of the cost that was depreciated is taxed (there is yet another calculation to decide at what rate it's taxed - depreciation reduced basis but "sale minus basis" does not necessarily get taxed at capital gains rate.)
The hows can get complicated but the general principle of "how to take into account the business costs" is pretty simple? And the building cost and maintenance are both costs. Doesn't really matter in there how long the building is supposed to last. It's a fairly arbitrary number in the calculation.
[If you do want to look at preferential treatment, you can look at "like kind exchange"]
Thanks for the reply & pointers. My impression is that real estate simply has some of the best tax treatments. My assertion - the best tax treatments are for those that do not make wage income. For that to be true, there just needs to be far better tax breaks for someone who rents many properties compared to someone like me that has a single W2 job & a mortgage.
Yet, you do raise a good point, a building for a landlord is akin to a server for an IT company - both are tax write-offs. The world is full of nuance though.. I really appreciate the dialog.
Yet, you do raise a good point, a building for a landlord is akin to a server for an IT company - both are tax write-offs. The world is full of nuance though.. I really appreciate the dialog.
correction: W-2 software engineers that don’t do anything else are pretty screwed
1099 software engineers have some of the best tax deductions, and that earnings range is the sweet spot
one of my favorite things to do is contribute $66,000 to a 401k for that tax deduction (thats how high the employer match limit really is), immediately borrow $50,000 from the 401k and donate that same money to a donor advised fund for a charitable donation. $116,000 tax deduction before looking at actual expenses. its not advice, its one of my favorite things to do, you have to pay back the 401k over time
off $265,000 in earnings (number chosen because thats the minimum to max out a self directed 401k) the AGI would be $199,000 and the MAGI would be $149,000. keep going and get it as low as possible. I would typically try to do a FMV charitable deduction from my existing portfolio. Combined cash+asset charitable deductions can lower that year’s earnings by 60%. if you achieve that the government is only looking for taxes on $106,000 and again this is before you look for expenses. But if there are pre-existing externalities like a mortgage and home depreciation, then you’re pushing your AGI (and subsequently MAGI) down further and further.
you can get to Warren Buffett %’s pretty easily even without having long term capital gains tax treatment.
1099 software engineers have some of the best tax deductions, and that earnings range is the sweet spot
one of my favorite things to do is contribute $66,000 to a 401k for that tax deduction (thats how high the employer match limit really is), immediately borrow $50,000 from the 401k and donate that same money to a donor advised fund for a charitable donation. $116,000 tax deduction before looking at actual expenses. its not advice, its one of my favorite things to do, you have to pay back the 401k over time
off $265,000 in earnings (number chosen because thats the minimum to max out a self directed 401k) the AGI would be $199,000 and the MAGI would be $149,000. keep going and get it as low as possible. I would typically try to do a FMV charitable deduction from my existing portfolio. Combined cash+asset charitable deductions can lower that year’s earnings by 60%. if you achieve that the government is only looking for taxes on $106,000 and again this is before you look for expenses. But if there are pre-existing externalities like a mortgage and home depreciation, then you’re pushing your AGI (and subsequently MAGI) down further and further.
you can get to Warren Buffett %’s pretty easily even without having long term capital gains tax treatment.
>you have to pay back the 401k over time
And you are also permanently out $50K of charitable contribution in just a single year. Pretty hard to justify if you have young kids who might go to college some day, or if your spouse doesn't wish to contribute to charity at that level.
And somewhere in your example you seem to forget that charitable contributions reduce taxable income, but not AGI.
Lastly, you forgot to take into account the deductions for self employed health insurance, and the deduction for half of self-employment (SUTA) tax, both of which reduce the amount available for retirement plan contributions.
And you are also permanently out $50K of charitable contribution in just a single year. Pretty hard to justify if you have young kids who might go to college some day, or if your spouse doesn't wish to contribute to charity at that level.
And somewhere in your example you seem to forget that charitable contributions reduce taxable income, but not AGI.
Lastly, you forgot to take into account the deductions for self employed health insurance, and the deduction for half of self-employment (SUTA) tax, both of which reduce the amount available for retirement plan contributions.
money not really out of your control if you have a donor advised fund or private foundation or both
my comment mentions MAGI specifically for someone like you, I’m aware this thread started off with being able to use the IRS’ free filing software and now is talking about not paying the government much or anything in taxes
my comment mentions MAGI specifically for someone like you, I’m aware this thread started off with being able to use the IRS’ free filing software and now is talking about not paying the government much or anything in taxes
>money not really out of your control if you have a donor advised fund or private foundation or both
Not sure what you mean by "control", but you are not getting it back. In one year, you have blown a $50K hole in your budget that you will never be able to spend on anything else.
Not sure what you mean by "control", but you are not getting it back. In one year, you have blown a $50K hole in your budget that you will never be able to spend on anything else.
Presumably the idea is that you can use that "donated" money to buy influence, e.g. buying your kids' way into fancy schools. I don't know whether $50k/year is enough to do that though.
now you’re talking, the other side of this is that this is just year 1
years 2 - n the tax exempt nonprofit account grows tax free, after its balance is large enough it can independently be an investor in VC/PE/Hedge Funds and have an infinite time horizon. just keep funding it until the homerun.
the same goes for the tax deferred retirement accounts, they are separate entities and can eventually become investors for higher risk higher growth things
they can be generational wealth things as well that allow for influence from your family, without the complications around ex-spouses, inheritance tax, cost basis adjustments, liability. just everything at your discretion while remaining judgement proof.
years 2 - n the tax exempt nonprofit account grows tax free, after its balance is large enough it can independently be an investor in VC/PE/Hedge Funds and have an infinite time horizon. just keep funding it until the homerun.
the same goes for the tax deferred retirement accounts, they are separate entities and can eventually become investors for higher risk higher growth things
they can be generational wealth things as well that allow for influence from your family, without the complications around ex-spouses, inheritance tax, cost basis adjustments, liability. just everything at your discretion while remaining judgement proof.
it really depends on how you get value out of it. tax deferred and tax exempt are still ammunition. and its important to load them up with as much money as possible, and then they grow tax free from there on.
by your hyperbolic word choice, I understand its important for you to be right about your view. don't do it then.
by your hyperbolic word choice, I understand its important for you to be right about your view. don't do it then.
I always find it amusing that people will give up tens of thousands or hundreds of thousands of dollars so they can save a few thousand in taxes.
populating tax deferred and tax exempt accounts is more important for me
if its not for you then employ a different strategy
if its not for you then employ a different strategy
I'm not referring to your use of your retirement accounts.
I'm referring to your choice to donate hundreds of thousands to charity so you can save a few thousand on your taxes.
I'm referring to your choice to donate hundreds of thousands to charity so you can save a few thousand on your taxes.
donor advised funds are under your control
your own private foundation would be under your control as well and can pay a salary - taxed as normal ordinary income - whenever that becomes important to you
your own private foundation would be under your control as well and can pay a salary - taxed as normal ordinary income - whenever that becomes important to you
there is very little that a W-2 employee can do if thats the only thing they do, aside from depreciating real estate and mortgage interest
if your goal is to earn and park money in a bank account, the government is trying to tell you to do literally anything else by taxing that the heaviest. their aggregate goal is for velocity within the economy because that is more useful for the government than its tax revenue, and so that is rewarded.
so its not really useful for me to write tax deductions that likely don't apply to you
if your goal is to earn and park money in a bank account, the government is trying to tell you to do literally anything else by taxing that the heaviest. their aggregate goal is for velocity within the economy because that is more useful for the government than its tax revenue, and so that is rewarded.
so its not really useful for me to write tax deductions that likely don't apply to you
In pursuit, they can go to the 1040 schedule 1 and read it: https://www.irs.gov/pub/irs-pdf/i1040gi.pdf - specifically look at lines 11-23, 25: https://www.irs.gov/pub/irs-pdf/f1040s1.pdf
"Normies" can probably take advantage of 20 pretty easily, if you don't already.
The "normal" way to adjust AGI down is to be a business and just not pay yourself as much and cycle everything back into the business.
But, remember, the goal is to maximize after-tax gains/revenue, not minimize taxes. You can minimize taxes by minimizing income!
"Normies" can probably take advantage of 20 pretty easily, if you don't already.
The "normal" way to adjust AGI down is to be a business and just not pay yourself as much and cycle everything back into the business.
But, remember, the goal is to maximize after-tax gains/revenue, not minimize taxes. You can minimize taxes by minimizing income!
> But, remember, the goal is to maximize after-tax gains/revenue, not minimize taxes.
yep. most of the things I like to do will satisfy that. people generally don't understand that the IRS is not this adversary that's waiting to be offended because they didn't get anything, when a lot of offices of the IRS basically helps you not pay them. Have to know how it functions and that requires education.
yep. most of the things I like to do will satisfy that. people generally don't understand that the IRS is not this adversary that's waiting to be offended because they didn't get anything, when a lot of offices of the IRS basically helps you not pay them. Have to know how it functions and that requires education.
Your earlier post would have been more helpful if you'd specified that you're only talking about a tiny minority of the working population. "Lower your agi" sounds like you're making a general recommendation.
it is a general recommendation as the observation is that if more of the population educated themselves in this field and structured their life accordingly, more of the population could have the same flexibility in lowering their agi at their discretion
right now, it is a tiny minority of the working population that does anything preemptively for tax purposes, it doesn't have to be that way.
right now, it is a tiny minority of the working population that does anything preemptively for tax purposes, it doesn't have to be that way.
Having the qualification be based on AGI is an absurd usability problem for people on the margin. AGI is the outcome of doing your tax filing, not the input!
Yes, presumably that is intentional by the tax industry lobbyists. You Google "what is my agi" and the first result is from TurboTax, you try to read that but keep getting distracted by all the big buttons that say FREE, so you click one of those and end up getting conned into paying Intuit.
TurboTax is sometimes actually free for the federal return, just not very clear when that is. Kinda like IRS Free File.
This is how I feel about the income limits for Roth IRA contributions as well.
Note: the fillable forms (which do some basic arithmetic for you but are still the general tax forms) don't seem to be available yet. These are the only "IRS Free File" option available if your AGI is over $79,000.
https://www.irs.gov/e-file-providers/free-file-fillable-form...
https://www.irs.gov/e-file-providers/free-file-fillable-form...
Who's eligible for IRS Free File?
> Taxpayers, including active-duty military, with an adjusted gross income (AGI) of $79,000 or less in 2023 can likely find an offer from an IRS Free File provider that matches their needs. Some providers also offer free state tax return preparation. Those with an AGI over the limit can still file their return for free using Free File Fillable Forms.
> Taxpayers, including active-duty military, with an adjusted gross income (AGI) of $79,000 or less in 2023 can likely find an offer from an IRS Free File provider that matches their needs. Some providers also offer free state tax return preparation. Those with an AGI over the limit can still file their return for free using Free File Fillable Forms.
I like the no-income-limit free fillable forms, but its not quite open yet
Free File Fillable Forms will open January 29, 2024, at 11:00 a.m. EST
https://www.irs.gov/e-file-providers/free-file-fillable-form...
Free File Fillable Forms will open January 29, 2024, at 11:00 a.m. EST
https://www.irs.gov/e-file-providers/free-file-fillable-form...
It's open now!
As someone who files with the IRS, I would prefer an easy tax code over an easy way to file.
Messy tax code = +time/money required, +scared will be prosecuted for messing up something unintentionally, +loopholes available, +hire some more IRS staff & police
Easy & clear tax code = -time/money required, -scared will be prosecuted for messing up something unintentionally, -loopholes available, -hire some more IRS staff & police
(apologies for those who make their living via our complicated tax system. If you're in the IRS, I appreciate those who have been helpful but like cancer treatment centers I wish there wasn't a need for you)
Messy tax code = +time/money required, +scared will be prosecuted for messing up something unintentionally, +loopholes available, +hire some more IRS staff & police
Easy & clear tax code = -time/money required, -scared will be prosecuted for messing up something unintentionally, -loopholes available, -hire some more IRS staff & police
(apologies for those who make their living via our complicated tax system. If you're in the IRS, I appreciate those who have been helpful but like cancer treatment centers I wish there wasn't a need for you)
> scared will be prosecuted for messing up something unintentionally
The IRS has pretty good customer support and gives people plenty of opportunity to correct mistakes. No one is getting prosecuted unless they are willfully and persistently evading taxes.
Yeah I agree but obviously the Congress is taking all sorts of bribes from the tax return lobby in order to make the code increasingly more and more complicated every year and thereby extort more money from us every year, the worst part is the psychological fear generated by this torturous tax return extortion system
For the longest time Democrats harped on this when Republicans were in power and completely forgot about it once they got power, just to yell about it some more once they were out of power again. But they actually went through and did it this time, so kudos for fulfilling a promise and taking away one of their former favorite campaign planks instead of trying to squeeze it forever. Maybe it's sad that this isn't the default expected behavior, but in this environment, it's worth pointing out when someone actually does what they claim to be in favor of doing.
Free file fillable forms has existed since at least 2012.
Free file as a concept has existed since 2001 when Congress passed some legislation about it.
Free file as a concept has existed since 2001 when Congress passed some legislation about it.
So I assume these "trusted partners", who aren't charging for the service, are somehow in the data collection racket?
Bingo! Has anyone read their terms of service?
[click here] to remove ads
[click here] so we won't sell your information
[click here] to disable data collection
[click here] to make us less cooperative with police
[click here] so we won't sell your information
[click here] to disable data collection
[click here] to make us less cooperative with police
That you are charged to file your taxes are the most American thing ever. Over here you just sign your prefilled return via your phone and be done with it.
Are you European?
I'm European. I've lived in the US a couple of years.
The thing is.... you're NOT charged to file your taxes. Filing your taxes is free. People have the option to pay a company that helps them file their taxes.
The peculiarity of the US isn't that you're charged but that the government's own system is shit (which is why many people choose to pay). This isn't uniquely American. I'm sure there's other countries where filing your taxes is a pain - though maybe not in Europe (?).
I'm European. I've lived in the US a couple of years.
The thing is.... you're NOT charged to file your taxes. Filing your taxes is free. People have the option to pay a company that helps them file their taxes.
The peculiarity of the US isn't that you're charged but that the government's own system is shit (which is why many people choose to pay). This isn't uniquely American. I'm sure there's other countries where filing your taxes is a pain - though maybe not in Europe (?).
> the government's own system is shit (which is why many people choose to pay)
The reason the government's system has historically been terrible is because of lobbying on the part of Intuit (maker of TurboTax) and others.
There was a great episode of Patriot Act a few years ago that discussed this: https://www.youtube.com/watch?v=7xQQkzWhMOc
The reason the government's system has historically been terrible is because of lobbying on the part of Intuit (maker of TurboTax) and others.
There was a great episode of Patriot Act a few years ago that discussed this: https://www.youtube.com/watch?v=7xQQkzWhMOc
the government's own system is shit, because Intuit has an interest in keeping it shitty. If it weren't, like other modern countries, you wouldn't pay them to help you with it. So they lobby heavily to keep the government from modernizing its system.
https://www.propublica.org/article/inside-turbotax-20-year-f...
https://www.propublica.org/article/inside-turbotax-20-year-f...
Germany's system is shitty without Intuit. They don't have a monopoly on this.
Germany's system doesn't penalize you for doing nothing if you're just a worker. That's very different from the US.
Last year I had an error on a form. The finanzamt sent me a letter (from a real person). My partner was able to call and ask some clarification questions. We filed the correction and it was no big deal. I wasn't in any risk of going to jail or being the target of a lawsuit.
Yes, getting a tax advisor (Steuerberater) here is very difficult, and sometimes necessary. But otherwise, the system is way less intrusive than the US's in my opinion.
Slow, sure. But not dangerous.
Last year I had an error on a form. The finanzamt sent me a letter (from a real person). My partner was able to call and ask some clarification questions. We filed the correction and it was no big deal. I wasn't in any risk of going to jail or being the target of a lawsuit.
Yes, getting a tax advisor (Steuerberater) here is very difficult, and sometimes necessary. But otherwise, the system is way less intrusive than the US's in my opinion.
Slow, sure. But not dangerous.
> Last year I had an error on a form. The finanzamt sent me a letter (from a real person). My partner was able to call and ask some clarification questions. We filed the correction and it was no big deal. I wasn't in any risk of going to jail or being the target of a lawsuit.
This is almost verbatim what would occur in the US as well if the IRS believed there was a mistake on your tax filing. People just keep repeating false information about the IRS year after year, and nobody fact checks anything they read from random people on the internet, that now everyone thinks if you miss a zero on your tax filing you committed a felony or something.
Calling US tax filing unnecessarily annoying and in-need of improvement just isn't enough for some people. They need to make up stories and baseless claims to spread fear or something.
This is almost verbatim what would occur in the US as well if the IRS believed there was a mistake on your tax filing. People just keep repeating false information about the IRS year after year, and nobody fact checks anything they read from random people on the internet, that now everyone thinks if you miss a zero on your tax filing you committed a felony or something.
Calling US tax filing unnecessarily annoying and in-need of improvement just isn't enough for some people. They need to make up stories and baseless claims to spread fear or something.
It's totally illegal in Germany to lie on tax forms. Whether you'll be sentenced for an honest mistake or not is a different matter, I don't think you would in either jurisdiction if it's something minor.
Lying and making a mistake are two different things. The IRS penalizes you for both.
The IRS sends you a notice to correct your return if they find a mistake. You fill out the form and send it back. Matter solved.
If it's a simple arithmetic error, the IRS will sometimes silentliy fix it for you and you'll never know.
If it's a simple arithmetic error, the IRS will sometimes silentliy fix it for you and you'll never know.
I would not say it is shit. Free fillable forms is pretty easy for 99% of people. You start filling it out, and there are pdfs of all the instructions available next to the form you are filling out.
The complexity of these forms combined with the fact that getting them wrong is a felony means that filling them out without any help is out of reach for the vast majority of the population.
Getting them wrong isn’t a felony. Refusing to pay after they inform you you were wrong might be a felony.
But they won’t tell you you were wrong for a few years, during which time interest accrues.
(Source, just paid 5k in taxes+interest for the 2021 year after IRS sent me a letter saying my stock selling profit calculations were off by 4.5k. I think they were wrong (I was certainly wrong too) but I can file an update and get a refund on my next taxes if so. Better to stop the interest accessing while I figure out my bases)
But they won’t tell you you were wrong for a few years, during which time interest accrues.
(Source, just paid 5k in taxes+interest for the 2021 year after IRS sent me a letter saying my stock selling profit calculations were off by 4.5k. I think they were wrong (I was certainly wrong too) but I can file an update and get a refund on my next taxes if so. Better to stop the interest accessing while I figure out my bases)
> the fact that getting them wrong is a felony
Why do people keep repeating this? It's so obviously wrong I can't believe that saying it can be anything other than bad faith. I have miscalculated my taxes twice now: in both cases, the IRS sent me a letter explaining the mistake and what I still owed, I wrote them a check for that amount, and that was it. No "felony" or even the faintest hint of one was in play. The letters even had an apologetic tone and suggestions for how to set up payment plans, as well as multiple ways to dispute the charges.
Why do people keep repeating this? It's so obviously wrong I can't believe that saying it can be anything other than bad faith. I have miscalculated my taxes twice now: in both cases, the IRS sent me a letter explaining the mistake and what I still owed, I wrote them a check for that amount, and that was it. No "felony" or even the faintest hint of one was in play. The letters even had an apologetic tone and suggestions for how to set up payment plans, as well as multiple ways to dispute the charges.
Because it satisfies their narrative that you're basically forced to use tax prep (human or machine) to file and therefore the fact that you can actually do so for free is a false choice.
It might be similar to the inverse of xkcd.com/1043 (Ten Thousand), in that something has been repeated so many times people believe it to be true. Thinking about this more I'd bet the myth that miscalculating your taxes was an exaggeration based on anti-tax rhetoric.
Getting them wrong is certainly not a felony.
In the vast majority of cases the IRS will just send you a letter asking you to pay what you owe.
In the vast majority of cases the IRS will just send you a letter asking you to pay what you owe.
With fees, which can be steep, and you might have to dispute what you owe, and the return payment might get lost... But yes, not a felony.
One of our two political parties here has the stated goal to make paying taxes as difficult and manual a process as possible in order to turn public sentiment against the very idea of taxes. The belief is that if paying your taxes was automatic and easy, there would be little pushback to tax increases.
Where do they state that? Higher taxes aren't really more complicated to pay.
>Where do they state that?
It is a policy that goes back decades. Reagan was notably adamant that "Taxes should hurt" to the point that he opposed the very idea of withholding taxes. He was the reason that California was the last state with an income tax to start automatically withholding taxes.
>Higher taxes aren't really more complicated to pay.
That isn't the argument. The idea is that the more painful the tax paying process is, the more likely Americans will oppose the very idea of taxes. It is very simple form of Pavlovian conditioning. Preparing taxes is a painful and awful process and people naturally associate that with the very idea of taxes.
It is a policy that goes back decades. Reagan was notably adamant that "Taxes should hurt" to the point that he opposed the very idea of withholding taxes. He was the reason that California was the last state with an income tax to start automatically withholding taxes.
>Higher taxes aren't really more complicated to pay.
That isn't the argument. The idea is that the more painful the tax paying process is, the more likely Americans will oppose the very idea of taxes. It is very simple form of Pavlovian conditioning. Preparing taxes is a painful and awful process and people naturally associate that with the very idea of taxes.
Got it, thanks
Grover Norquist, prominent conservative voice and head of Americans For Tax Reform has talked about the danger of government provided filing services, namely that he believes it leads ultimately to increased taxes.
The idea is that if the govt is saying how much you made, how much you owe, and just giving you a place to click "OK", it's on the tax payer to do the math to disagree, and the govt has incentive to find you owe more. And, taxes are less visible and easier, so if taxes go up or policies change, all the americans just confirming and hitting "Pay" aren't going to notice or be mad.
Or, something like that.
If taxes are simple you don't realize how much they are. These people want everyone to write a check on April 15th every year for the full amount - having to come up with more than $10,000 on short notice is very hard for most people. They don't like withholding because people pay attention to the bottom line and so they don't notice the hundreds of dollars missing form each pay check.
It's very unlikely that someone with a mostly salary W-2 with even remotely sane deductions is going to get a $10,000 bill out of the blue.
If there was no withholding that is a reasonable bill for a lot of people. If you made $70,000 then that is about what your taxes deductions like 401k)
Well, yes, if there's no withholding and if withholding is not an option someone sort of needs to be aware of that fact and even be paying estimated quarterly taxes. It shouldn't be a surprise and there may even be a penalty past some point.
The point is there are some people who want to make that the default. No withholding, no quarterly estimated taxes. Every April 15th you pay the IRS your full tax bill. it would make people aware of just how much they are paying.
You're only charged by a 3rd party if you hire them to handle your taxes. If you deal with the forms yourself and mail it it's free.
I think the issue is that our taxes are so complex that we have to pay a 3rd-party to do it for most of us.
But for most people (although perhaps not most of the HN crowd), taxes aren't terribly complex. And in theory, the IRS already has the majority (if not all) the necessary information needed to file taxes. But Intuit and others lobby to make this more difficult.
This. Tax regulations are thousands of pages. And if you own a business, there's no way you're going to be able to run the business and become a tax filing expert.
I mean, sure, there can be complicated cases, but for the vast majority of people doing person taxes, a 1040EZ is all you need and it’s like 2 pages.
1040EZ (and 1040A) were phased out in 2018, apparently because the standard 1040 form was simplified (and, yeah, it's 2 pages). But your larger point is 100% correct.
There's no 1040EZ anymore. Just FYI.
Our taxes are not that complex and for most they have never been than complex. Reagan's tax reforms greatly decreased the complexity, and Trump's reforms made them massively easier for most people. (you can think what you want about both president's but they both made reforms that made taxes much simpler)
3rd parties convince you taxes are complex via underhanded tricks, but that doesn't mean they are. There is a reason tax software puts lots of delays in - they want to you think your computer needs time to do the complex calculations. There is a reason tax preparers interview you and then don't give you the taxes filled out instantly - they want you to think there is a lot of hard work left. Has your tax preparer ever told you that some tax deductible things are not worth deducting or did they just look at and ignore the receipt - that is a way to make taxes seem complex.
If you own a small business your taxes might be complex. However most people have been fooled into thinking their taxes are harder than they really are.
3rd parties convince you taxes are complex via underhanded tricks, but that doesn't mean they are. There is a reason tax software puts lots of delays in - they want to you think your computer needs time to do the complex calculations. There is a reason tax preparers interview you and then don't give you the taxes filled out instantly - they want you to think there is a lot of hard work left. Has your tax preparer ever told you that some tax deductible things are not worth deducting or did they just look at and ignore the receipt - that is a way to make taxes seem complex.
If you own a small business your taxes might be complex. However most people have been fooled into thinking their taxes are harder than they really are.
Certain aspects of the tax code for "normies" who are on the higher income side has probably gotten more complicated at various times. (Or not, see the increase in the standard deduction.) But I'm willing to bet that if you went back to the 60s or even the 70s, you'd find filling out taxes wasn't appreciably easier and a far smaller fraction of people went to accountants--and of course tax software wasn't even an option. Nor were home calculators.
I'm guessing it's far more about the rise of shopping mall tax prep than Intuit lobbying.
I'm guessing it's far more about the rise of shopping mall tax prep than Intuit lobbying.
My taxes got much simpler after Trump's reforms - suddenly the standard deduction was large enough that I didn't have to itemize everything (to get the mortgage interest deduction) I'm not old enough to have done taxes before Reagan's reforms, but I'm told things got a lot easier then because a lot less things were deductible and so there was less lines to fill out.
It was probably pre-Reagan that if you really wanted to optimize you kept track of every sales tax receipt and piddly charitable contribution and probably other things I forget. Now there's no reason for most people to do it and most people with big enough deductions to qualify probably can't be bothered with the nickels and dimes.
Are capital returns taxed? if so, how?
I don't know why you are being downvoted. I think it is a very reasonable question to ask how the government can pre-populate capital tax forms without being notified of sales. If the onus is on you to send in the sales documentation throughout the year, then I would not say this is as simple as "signing on your phone". If a company handles it for you, then you are paying for that service. I would even to go so far to say that your employer being forced to maintain an accountant to send in your income tax forms is not free to you.
The point being made is that anything beyond income tax is essentially impossible to automate since the government cannot (and I believe should not) track your cost side. For instance, the solar tax credit in the US is a scout's honor type form where you can put whatever cost you want to claim that are eligible without receipts. If you get audited, you better hope you can conjure those receipts. How could the government automate such a form?
The point being made is that anything beyond income tax is essentially impossible to automate since the government cannot (and I believe should not) track your cost side. For instance, the solar tax credit in the US is a scout's honor type form where you can put whatever cost you want to claim that are eligible without receipts. If you get audited, you better hope you can conjure those receipts. How could the government automate such a form?
> The point being made is that anything beyond income tax is essentially impossible to automate since the government cannot (and I believe should not) track your cost side.
Since 2008, brokerage firms are required to include sales and their cost basis information on 1099-B forms. There's technically no reason these couldn't be electronically transmitted to the IRS in a standard format.
https://www.finra.org/investors/insights/cost-basis-and-your...
> For instance, the solar tax credit in the US is a scout's honor type form where you can put whatever cost you want to claim that are eligible without receipts.
This is true, but as you say, the consequences of an audit and discovery of the fraud are meant to deter it.
> How could the government automate such a form?
Create a website where the solar installer registers the installation and enters the cost information of the project, and the taxpayer claims the record and associates it with their tax records. They are already doing something like this for car dealers for the EV tax credits:
https://www.irs.gov/credits-deductions/register-your-dealers...
Since 2008, brokerage firms are required to include sales and their cost basis information on 1099-B forms. There's technically no reason these couldn't be electronically transmitted to the IRS in a standard format.
https://www.finra.org/investors/insights/cost-basis-and-your...
> For instance, the solar tax credit in the US is a scout's honor type form where you can put whatever cost you want to claim that are eligible without receipts.
This is true, but as you say, the consequences of an audit and discovery of the fraud are meant to deter it.
> How could the government automate such a form?
Create a website where the solar installer registers the installation and enters the cost information of the project, and the taxpayer claims the record and associates it with their tax records. They are already doing something like this for car dealers for the EV tax credits:
https://www.irs.gov/credits-deductions/register-your-dealers...
Part of the reason I dislike giving examples is that people think the argument hinges on the examples. The point of my argument is that notifying the government of everything (1099-B in this example) as it happens live and settling at tax time with determined calculations sent to you by the government is the same complexity of maintaining your own records throughout the year then notifying and settling at tax time. The key part I'm emphasizing is that the hard part of taxes is collecting the information and knowing what is taxable. Not the calculation. If you think that taxes are hard because you need to multiply line 17 by 0.3 and then take the minimum of line 19 and 20, then we are not discussing the same thing. Again, pretending that businesses maintaining an army of accountants and filing the relevant information for you as part of their service is "free" and "automatic" then we do not see things equivalently.
A segment of the population believes that the responsibility is on the government to prove you filed incorrectly. Giving them the authority to collect whatever information they want on you is an issue of privacy. Personally, I'm opposed to businesses sending the government all your information not because I want to make life harder for myself/others at tax time but because I don't believe the information will be used only for taxes. The solar example was meant to emphasize the point that the government can only automate the process if every single purchase is marked and accounted for. Giving them the authority to track all purchases (both digital and physical) or mandating others to record said purchases sets a dangerous precedent. Hopefully we could agree on that.
A segment of the population believes that the responsibility is on the government to prove you filed incorrectly. Giving them the authority to collect whatever information they want on you is an issue of privacy. Personally, I'm opposed to businesses sending the government all your information not because I want to make life harder for myself/others at tax time but because I don't believe the information will be used only for taxes. The solar example was meant to emphasize the point that the government can only automate the process if every single purchase is marked and accounted for. Giving them the authority to track all purchases (both digital and physical) or mandating others to record said purchases sets a dangerous precedent. Hopefully we could agree on that.
> Again, pretending that businesses maintaining an army of accountants and filing the relevant information for you as part of their service is "free" and "automatic" then we do not see things equivalently.
I'm not arguing that it's free. Nor am I arguing for sending information about every trade someone makes to the IRS. I'm arguing that since they have to generate a summary 1099-B anyways, why not just transmit it to the IRS electronically? There's no change in privacy, since presumably today you'd follow the law and submit the information from your 1099s to the IRS anyways.
I'm not arguing that it's free. Nor am I arguing for sending information about every trade someone makes to the IRS. I'm arguing that since they have to generate a summary 1099-B anyways, why not just transmit it to the IRS electronically? There's no change in privacy, since presumably today you'd follow the law and submit the information from your 1099s to the IRS anyways.
Other examples would include selling items in garage sales. How will the government automatically account for selling of a rare watch or vehicle sales? What about crypto sales and airdrops?
Vehicles have titles so I wouldn't count of that not being tracked in some way. At least in MA occasional/isolated sales of things "acquired for personal or household use."
I imagine that for really expensive sales, the answer is consult with your accountant.
And of course lots of things happen with cash as long as the amounts aren't too great.
I imagine that for really expensive sales, the answer is consult with your accountant.
And of course lots of things happen with cash as long as the amounts aren't too great.
"the answer is consult with your accountant." is not free automatic filing with the gov.
On the order of 10% of US taxpayers have anything beyond the income that is reported on a 1040.
There is no need for the obvious, public, easily accessible tax filing system to be designed around the needs of that 10% (I am in that 10%, btw).
There is no need for the obvious, public, easily accessible tax filing system to be designed around the needs of that 10% (I am in that 10%, btw).
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esbranson(2)
This is going to be useful to almost nobody, who is going to willingly sign up for a program that doesn't even work with their home state?
It's going to have to be rewritten with another billion dollars spent so it can "integrate" with state systems, which will be so broken and insecure the IRS will probably discontinue it and then just partner with turbotax or something after it gets breached for the 5th or 6th time.
Most people here have never seen how government software is made and it shows. There is a reason the NWS does not make a weather app, and it is because it was too obvious how much of a scam government software was when it came out to be in the millions to make.
It's going to have to be rewritten with another billion dollars spent so it can "integrate" with state systems, which will be so broken and insecure the IRS will probably discontinue it and then just partner with turbotax or something after it gets breached for the 5th or 6th time.
Most people here have never seen how government software is made and it shows. There is a reason the NWS does not make a weather app, and it is because it was too obvious how much of a scam government software was when it came out to be in the millions to make.