I have just finished doing our taxes for this year. I do our own taxes and do not use a tax professional because I am not intimidated by numbers, can follow instructions fairly well, and think that I can do a more careful job. Being a kind of detail-oriented person, carefully checking the work of someone else would be as much work as doing it myself.
Of course, a lot of people do their own taxes. But I also refuse to use the commercial tax software that is available that will do the calculations for you. Instead, I have created my own spreadsheet that I update every year when there are new rules. I enter the input data and it does the rest. After the spreadsheet is ready, I download the fillable forms from the federal, state, and local governments and transfer the numbers from my spreadsheet onto the forms. I then print out the forms and then send them by snail mail to the government. It sounds tedious when I describe it but doesn’t take the long and since I have done it this way for twenty years, it is pretty straightforward for me.
Why don’t I use commercial tax software? From a mixture of caution and principle. The caution arises from the fact that I do not see why I should have to give so much of my personal and confidential information to a third party just for the privilege of having them send it on to the government.. That seems to me to be ripe for abuses such as identity theft and we know that happens. My colleague had his identity stolen because of using commercial software and it took him forever to rectify it.
The principle arises because it seems to me that since I am dealing with the government, the government should provide me with software that enables me to deal directly with them, without forcing me to go through third parties. I object to the fact that the government made a deal with the tax software companies to not offer direct filing, so that those companies could continue to charge people for the privilege of giving money to the government.
Senator Elizabeth Warren seems to think like me and is trying to fix this.
Warren’s bill, the Tax Filing Simplification Act of 2016, seeks to establish a free online tax preparation and filing service that would give citizens access to tax return information provided by third parties like employers and allow them to file directly file with the federal government. The bill is taking aim at the Internal Revenue Service, seeking to prevent it from entering into agreements with third parties that block its own ability to provide free online services.
As part of the Free File Alliance, the IRS works with private services like H&R Block, Intuit and Jackson Hewitt. A report issued by Warren’s office details the powerful lobby of for-profit tax filing companies that have opposed making tax filing easier. Estimates from the Sunlight Foundation and OpenSecrets.org found that Intuit (known for its TurboTax software), H&R Block and Jackson Hewitt have spent almost $41 million since 1998 on federal lobbying opposing return-free filing.
The bill would amend the 1986 tax code by having the secretary of the treasury establish an online tax preparation and filing software by 2018. It would also enable taxpayers to “download third party-provided return information relating to individual tax returns for taxable years beginning after 2016.” The bill seeks to give taxpayers access to information from the U.S. Treasury website in a timely fashion and in formats that can be downloaded or printed to be used later to file tax returns.
A group of 41 academics, including economists and legal scholars, have signed a letter supporting Warren’s proposed bill, describing the American tax filing system as “one of the most confusing and expensive” in the world that provokes anxiety due to its complexity.
Good for her. She is easily one of the best senators we have. But you can be sure that the lobbyists for the tax preparation companies will immediately go to the senators they have bought and try to stop this.
I agree with this idea in the abstract, but the U.S. government does not have a stellar track record when it comes to creating new software. I know that the Obama administration has taken steps to bring in Silicon Valley experts to rectify this, but will a new president continue this practice?
Maube they’ll have the same beltway bandits code it that have produced such spectacular failures as FBI’s virtual case file, or the IRS’ cyberfile initiative. The government not only doesn’t know how to code -- it doesn’t know what people who know how to code look like. You are looking at a perfect storm of clueless where contractors who don’t know how to do something are overseeing other contractors who may or may not know what they are doing.
After 3 years of measuring how long it took me to do my taxes, then mapping that into billable hours, I discovered that my accountant saved me more than his fee. In other words I lost less time and got my taxes done for a slight profit.
It’s good to do a bit of cost/benefit analysis. Disclaimer: my hourly billing rate may be higher than yours and my return is usually about 2″ thick.
Mano, you might look into using the fillable forms service; the IRS links to the page from here.
It’s quite a bit like doing your taxes manually, but it will do some of the math, and you can e-file for free. I’m not sure, but it looks to be operated by the IRS, likely to reduce the need for data entry on snail-mail returns.
“the government should provide me with software that enables me to deal directly with them”
What kind of backward country is the USA? The Netherlands have done that for at least 20 years!
Ditto #4. I have been using the “Free File Fillable Forms” for a couple of years and they seem to work. It doesn’t cost anything. I don’t think the IRS itself does it, but that they contracted the work out, because it is not on their site.
My state has a pretty decent free online service as well.
#4 and #6,
I looked at it a few years ago but that site is not run by the IRS. If you click on the button that says “Start Fillable Forms Now” it takes you to a page where IRS disowns ownership and says clearly:
As mnb0 says, it is a scandal that the US cannot or will not do what other countries have done well for years. There is no reason to think that government coders need be more incompetent than in the private sector. The IRS is heavily under-resourced because politicians (Republicans especially) want to make sure that it does not have the teeth to investigate tax fraud.
I would observe that the IRS already devotes extensive resources to automation efforts. If you look at the instructions, forms and worksheets, they generate huge numbers of flowcharts to cover a seemingly endless number of contingencies (all driven by the tax code). The flowchart is one of the earliest (and worst, IMO) forms of automation documentation.
In addition, they have to produce a substantial number of test case data sets for the benefit of private tax preparation software companies. The certification process for a software package to e-file a return requires that they produce an acceptable representation of the input test cases. As a programmer (and someone more familiar with tax law and forms than I’d like to be), this represents a huge effort to produce, maintain, support and update. I wouldn’t want to misrepresent the amount of work that goes into a tax preparation program, but I think it’s inescapable that the IRS is already doing a very large part of it.