Free Tax Software Is Bad
common-form.comI don't feel bad for Intuit maker of TurboTax. Intuit has spent millions lobbying against tax reform that would make filing simpler.
http://techcrunch.com/2013/03/27/turbotax-maker-funnels-mill...
That seems like a pretty simplistic conclusion to make. Do you really think, given the recent embarrassment that was the ACA enrollment website, Intuit is worried the Government will come up with better software to file taxes than they have? It makes more sense to me that Intuit is worried the Government will shut out alternatives once they put their tax filing service online by making it the only way people can e-file, and that it will only be "better" because it will involve further reach of the Government into our personal financial information. I would absolutely spend millions to lobby against that potential outcome if I were them and I'm glad they do. If we have tax reform, I'd rather it be a complete overall of the tax system to make it simpler rather than spend millions allowing the Government fumble around trying to make software that helps people navigate the laughably complex tax system they were responsible for creating in the first place.
The tax reform that they lobbied against would have made it similar to the way some other countries do it:
The IRS sends you a form with all the numbers filled in. After all, for many people, the IRS already has that information.
Here's Norway's version:
"You will receive a tax return from the Norwegian Tax Administration in March/April if you work in Norway or on the Norwegian continental shelf. The tax return gives an overview of your income, deductions, assets and debts for the last income year.
You must check that the information in the tax return is correct and complete. You do not need to submit it if there are no changes to be made."
http://www.skatteetaten.no/en/International-pages/If-you-wor...
>it will involve further reach of the Government into our personal financial information.
The system many other countries have, such as the example given for Norway, involves them filling the data you intend to give to them. If you supply your own data then you may have to give proof. I don't see the difference in what they end up knowing.
Oh believe me I don't either. It's horrible an industry can crop up to assist with government inefficiency and eventually become powerful enough to keep the inefficiency in place.
Wouldn't you, if that were your business model? Let's blame TurboTax when it's legislators selling their power. They could, you know, be representatives of the people and not be influenced by TurboTax.
Plus, that article talks about TurboTax lobbying against the government providing their own tax software, nothing about making returns simpler. Why would a government-run service be simpler? I'm sure TurboTax wants to make their software as simple to use to compete with other tax return services. I've found these services very simple to use myself. If we were talking about making the tax code simpler, I would agree, so perhaps I missed that.
Your point seems to be that we shouldn't blame a corporation worth billions for making laws that make our society worse because there are others at fault as well...?
That's like saying it was not the Confederacy's fault for trying to stop the Thirteenth Amendment because it ruined their 'business model' too.
If a business pays money to make anyone's life harder then they are bad.
What does that say about the government then? They are complicit. The government is accepting money to make people's lives harder.
Yeah, that's why in a lot of countries you just use the state-sanctioned software and be done with it.
This is just BS from companies afraid to lose their cash cow.
Fraud is always going to happen, period. Deal with them and that's it.
> in a lot of countries you just use the state-sanctioned software
Make that free, web-based & state-hosted online solutions.
What is this tax-software thing you are taking about?
For Switzerland there's a java based software that allows you to print a PDF in the end you can send by snail-mail.
See this page if you're interested: https://translate.google.com/translate?sl=auto&tl=en&js=y&pr...
They also have a web based solution, but I personally prefer not to use it, because I don't trust it.
I switched to the online version, and I can't really tell the difference vs. the java software.
Out of curiousity what do you not trust?
(The difference is that the java software runs localy and spits out a PDF for snailmail, and the online version is a webapp that directly transmits our stuff to the server.)
I don't trust to store this stuff in a remotely secure manner for the online version. I have no idea how their setup looks like, but I expect they'll throw it in some kind of database and are done with it. That would be the worst case.
If anyone manages to compromise the application server, they can see all the data.
I don't trust them to have a sane architecture where the application server has basically write only access to the database. I don't trust them to encrypt the data with a public key to process them later on on a box that doesn't serve random requests from the internet.
I have more faith in them beeing able to physically guard a piece of paper, even if they'll scan it and then process it digitally later on (which they do), you can not access it by exploiting an SQL injection on the public internet (hopefully).
Edit: I just checked their website again and it seems to confirm my suspicion about their architecture. Seems you could even get access to all data from previous years:
> If the online solution [was] used in the previous year, the previous data will be available automatically.
Sure, they could encrypt each dataset with they key the provide to each user, but i doubt it.
Finland: the tax administration knows almost everything about your money already, income tax is withheld by employers in advance through a pay-as-you-earn system (and this has been on for decades).
Tax authorities would like to get direct access to see bank accounts, that's not on yet.
Filing a tax return is very easy. Usually you need to do nothing, but if you have some specific tax deductions - not much is eligible - then you can do it with a fairly simple Web interface, or leave an equally simple paper form.
Your first paragraph is largely true for the US (people running quite small businesses don't necessarily have to keep up with pay as you earn, but the limits are a few thousand dollars and then the correct thing is to make regular payments during the year).
The difference is that US agencies don't actually use this information, likely because of privacy regulations and stop forth. The right hand rarely knows what the left is doing, unless law enforcement or homeland security get involved.
You can see this even more starkly in the difference between the two in regards to medical records. Or even just basic personal details. My Kela card mostly tells doctors all they need to know, and even my address changes seem to get around without my having to do anything about it.
It was a bit unsettling at first for an American, but the systems here are largely pretty efficient except where unemployment is concerned...
True. In India, we have a state-hosted tax filing portal[1] that's very easy to use.
[1]https://incometaxindiaefiling.gov.in/e-Filing/UserLogin/Logi...
I think we have a web based application for simple tax returns now in Australia. I still download the free application from the tax office to do mine though because I have to put my business income in and share income and stuff. It's a bit crappy, but at least they finally have a Mac version as of about two years ago and it only takes about 45 minutes because it pulls most of your info in (bank interest, share income, salary, etc.) when you put in your tax file number (a bit like a social security number I think) and then you just add in anything missing and do the deductions.
I use an accountant and claim it as a tax deduction the next year.
In Spain we have an state developed program to fill and send the taxes.
That's so un-American.
Thing is, this is a new phenomenon, being accessible free for so very many people.
Federal "free e-File" cut off is a lot lower than what TurboTax is offering this year; I only ever even qualified for federal most years, state still cost, and not long ago even if you qualified for free e-file on income grounds you could still be charged a percentage of your refund if it went over a certain amount (I wound up paying a little bit while I was in college and collecting Obama's student tax credit).
This "Absolute Zero" thing is something they've offered above and beyond the requirement, most likely to encourage more people to connect to the system and make it easier to sell them on doing it again through TT next year when it's not so free anymore.
And I find it a little rich that Common Form is criticizing them on this, considering they only even support filing a 1040EZ, which is a vastly simpler form than even a 1040A, is only available below a certain income cutoff (which cutoff used to line up almost exactly with the "free e-file" rule), and they're charging $20 for them to process a 1-page form you can do by hand in about 20 minutes.
Complaining something is bad because the low/free price makes crime feasible is...baffling. Like banning spoons because they're cheap, making it easier to get fat.
The USA does provide free tax software: http://www.irs.gov/uac/Free-File:-Do-Your-Federal-Taxes-for-...
I never advocated banning anything. The argument is closer to "cheap, high calorie low nutrition food is leading to an obesity epidemic." Tax fraud costs taxpayers billions of dollars[0]. There are surely many ways to combat this, but the correlation between fraud and it being free to attempt fraud en masse is real.
The link you provided points to industry participants in the Free File Alliance[1]. Some skeptics believe the industry has this program to appease the government enough to not pursue tax software created by the government. If you're one of the folks who believe we should have a more european-style system, participating in FFA probably works against that goal (I don't know that that's your stance just throwing it out there for others to consider)
I think it's also interesting from a business case study. I tried to make the argument that tax software isn't cheap to produce. What's the right way for competition to blossom if the cost to users is "free" and the revenue is made up via other less than savory means? Does small-guy competition have to resort to the same tactics?
[0] http://www.forbes.com/sites/leonardburman/2012/05/28/billion...
That just links to a page of the free editions of commercial software.
It is quite funny, looking from a small country, how big the "tax software" industry is in the US. I live in Finland, but even we have about 5 alternatives for accounting software etc. However, not much for personal use. I often wonder how big percent of the software people work only on these problems, which relate to tax filings, refunds etc.
Same here, coming from Norway. My process of filling in taxes is get an e-mail notifying me it's ready to be checked, log in to a government website using a secure ID chip thingy, check that the yearly income and tax percentage looks correct, click OK, done.
Taxes are paid continuously by my employer on each salary payment, and if at the end of the year it turns out I paid too little, I get a bill, and if I paid too much, I get a return to my bank account.
In the UK the vast majority of people do nothing each year, they get a piece of paper called a P60 that just lists the money the earnt and the tax their employer deducted at source for them.
Yep, looking from the UK or Ireland, we are constantly told how the US is so efficient at everything, etc etc....but their tax system is a complete mess...There are far to many credits, loopholes, electoral pork, red tape in the US system.
It's part of a bigger question I have been pondering recently. My sense is that in the 80s/90s the US tax system was much more efficient than the UK/Ireland/Scandinavia/German/Baltics system but somewhere along the line we learned their lessons and overtook them in terms of efficiency. (I suspect it's a bit like the Beta/VHS thing).
Even running a small company taxes in the UK is (honestly) not too tricky when it comes to this stuff - I'm sure it's even easier in a flat tax place like Estonia (take 20%, send it electronically to government, go back to work.).
I can only imagine how painfully complex it is in the US - and the amount of time an entrepreneur would spend dealing with it instead of building stuff.
Having been in the states a number of times in the last few years, I have been pretty shocked about the amount of bureaucracy that gets in the way of even very basic stuff - simple transactions, employee visas, lack of credit/eletronic payments for stuff etc etc
More less like in Spain. The government send an SMS or email, you check the data and if right you approve it
Interesting point. For the past few years, I have printed out my return and mailed it in because that is free and e-filing costs money. I do it partly because it is cheaper but also partly because I find it sad that e-filing is not easier and more cost effective for the government to handle than a paper submission (if it is, it is sad that the government is not incentivizing it through cost). Maybe the government just prints the e-filed return out and adds it to the stack of mailed in returns to be processed. It seems like there would be big gains in efficiency if the government had a standard digital submission protocol, if they could get past the initial cost to develop it and could handle the security issues it would entail.
They DO have a standardized submission protocol, you just can't send things to it without a certified client program.
They offer a truly free e-file solution (for Federal): https://www.freefilefillableforms.com/#/fd. Part of the deal for getting all the paid clients certified was that companies had to provide this product for free.
Indeed, I use and appreciate freefillableforms.com. Sorry, I should have clarified that I was talking about the state government tax filing process not having a free electronic submission process (at least for the three states I have filed in recently).
> Creating good tax software is hard.
This is called strategically reframing the issue.
The problem with tax software is not that it is hard to write, it's that it should never have been needed in the first place.
Tax laws work for large corporations who can hire teams of lawyers to find loopholes in them and fail people who just need to do their taxes. This is a policy issue that cannot and should not be worked around using software, proprietary or open source alike.
Here's some US individual state tax experiences, granted, all for simple filings, that might suggest some good things:
First state tax return I filled out was in Massachusetts in 1981, and it was the ultimate EZ form: they sent me a punch card with e.g. my ID info already punched into it, and I filled out a few items and was done.
Much more recently Virginia created a very nice web site; they also quite intelligently have a deadline of May 1 so you don't treat your state taxes as something of an afterthought.
Missouri, where I retired to, did a very interesting thing: PDF tax forms which you fill out, hit a button on them I think, and it encoded all the info in a 2D barcode in upper right of the form. Which if all goes well, makes it super easy for them to get everything correctly into their systems.
Just in case there are Californians here paying to file taxes, eFile is simple, free, and works well in my experience.
I would like to take this moment to encourage HN readers to consult Wikipedia in order to determine the difference between tax evasion and tax avoidance, and adjust their returns accordingly.
Remember: tax evasion is illegal. Tax avoidance is discouraged.
I'm usually quite good about catching "we're gonna sell your data!" dark patterns, but having just done my taxes on TurboTax I definitely saw that consent form and didn't understand its implications. Yeesh.
Privatized tax collectors are bad. Private collectors have every incentive to make collection as difficult as possible so as to cement their position (and profits).
A government that employs a tax scheme that is so complicated that it requires private collectors is signalling dysfunction and is presenting an attack surface whereby that government is open to undue influence from the collectors while simultaneously hampering the people's ability to direct the affairs of that government.
How much time does a person have to spend to understand and comply with the requirements of the tax scheme? Well, in the US, practically no one knows because they are paying a private collector to figure it out for them. Even when going with a private collector the time I spend at the end of the year is measured in hours. Without the private collector it would likely be more than a dozen hours, and that's just for filling out forms. There is also a significant time cost to maintain and store various documents throughout the year.
Now consider that those are the costs if you are already familiar with the scheme. If you aren't already familiar with the scheme, you're pretty much SOL. The government doesn't even notify you that you are required to pay any taxes until you don't and informs you that they are coming after you for penalties. Go check out the IRS's website [1], no where on the landing page is there an obvious explanation of what your responsibilities are. If you manage to make it to the form 1040 instructions[2], you've got a 100+ page PDF to read up on just to learn how to fill out one of the forms. There's also handfuls of other forms and and instructions all over their site, with no comprehensive structure or explanation for.
The above scenario is already a nightmare and it doesn't even touch on what the actual tax scheme is[3], which the IRS doesn't even bother to host, but instead links to the website of a the law school at an Ivy League university. When you try to read the scheme on the third party site, you have to click through several layers of titles, subtitles, chapters, subchapters, sections, etc. just to be able to read one portion of the scheme at a time. As you try to just get to an actual sentence in the scheme you get prompted by a pop-up to donate $50+ to an unidentified entity for an ambiguous cause[4].
At this point, I've given up researching the matter further. The current system is indefensible and needs to be abandoned as soon as possible.
[1] http://www.irs.gov [2] http://www.irs.gov/pub/irs-pdf/i1040gi.pdf [3] http://www.law.cornell.edu/uscode/text/26 [4] http://i.imgur.com/vSppOXX.png
I'd use "preparer" everywhere you use "collector" above. The private companies don't actually collect the money; that goes straight to/from the government. The private companies, whether silicon or carbon-based, just serve to help you prepare your tax return (ie: calculate your total tax and file the return).
I agree with you on the complexity points, as I spend in the just barely four-figures annually for my CPA/EA to prepare our family returns. Our filing generally runs in the 50-100 page range and I don't even run a business.
I disagree on the duty to inform point. It is your duty as a citizen (and optionally a business owner) to understand the laws that are relevant to you, and not the government's duty to push that information to you in a customized-to-you fashion.
> I disagree on the duty to inform point. It is your duty as a citizen (and optionally a business owner) to understand the laws that are relevant to you, and not the government's duty to push that information to you in a customized-to-you fashion.
I agree with you to a point. Citizens and businesses have a responsibility to understand the laws that apply, but government has a responsibility to make those laws as easy to find and understand as practical. The source of most complaints about government services in the US can be traced to lack of customer service, of which this is a form. The government has no impetus to spend resources on this problem; the cynical would claim they actually have a perverse incentive to make laws as obtuse as possible in order to bring in fines for innocent mistakes.
The IRS used to be much worse in this regard. A couple decades ago they didn't give a flying fuck about the taxpayer. "Understanding the laws" back then basically amounted to dumping a pile of legalese the size of the Encyclopedia Britannica in front of the taxpayer and expecting them to go through it and figure out what applies to them. That is the behavior that spawned the tax preparation industry in the US in the first place.
> push that information to you in a customized-to-you fashion.
but the IRS somehow knows exactly what you owed them and why, so why can't they just perform that calculation before hand, and then tell you it, instead of forcing an onerous process on everyone else, and waste people's resources paying for tax-preparation services?
The largest blocker in my experience is that they don't have that information processed for 6-18 months after the filing deadline.
Source: personal experience with a period of very-late filing in my younger and dumber days.
Other factors are that they can't possibly know your total liability. They literally don't know exactly what you owe them.
Cash-based employment or trade, sales of securities purchased prior to the very recent cost-basis rules, basically anything schedule C or E (small business or rental property), etc, etc.
They might be able to auto-file something close for the simple W-2 employee case with no investments, but they don't have a secret computer system with your full return auto-prepared and just waiting to catch you for forgetting to enter $12 in bank interest from a long-forgotten account.
The IRS knows the maximum you owe. If you just want them to send you a bill and you pay it without contention, that could be arranged. If you want to use any deductions, then you'll have to work thru the paperwork explaining why you don't owe them so much.
> but the IRS somehow knows exactly what you owed them and why
They know how much you owe them before deductions.