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Making April 15th a better day

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About 90% of Americans used either tax preparers or tax-preparation software in 2009. That's insane, particularly when you realize that a substantial minority of Americans either don't pay income taxes or have a very simple filing. But when people talk about the need for tax simplification, they overestimate the complexity of many people's taxes and they underestimate the role that fear and anxiety play in the process. People are terrified that they'll get something wrong, or trigger an audit, or miss a rebate. They're intimidated by the tax system itself. You may think you can do your taxes, but why take the risk?

It doesn't have to be this way. But as you'll see at the link, H&R Block would prefer things never change.

Photo credit: Alan Cleaver.

By Ezra Klein  |  April 12, 2010; 9:11 AM ET
Categories:  Taxes  
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Comments

90% is astonishing. My taxes are pretty simple, although I do take deductions, and I've never even considered using a preparer or software. I'm probably leaving money on the table, I suppose, but geez.

Posted by: bdballard | April 12, 2010 9:06 AM | Report abuse

It all a big sham to create jobs for attorneys and cpa's. Flat sales tax would remove all our problems.

Posted by: jercary | April 12, 2010 9:11 AM | Report abuse

I would hope you guys check out some of the other sites available to you. Squawkonthestreet posted a question last week about our tax system. Over 8000 viewers responded and 84% of respondants suggested a flat tax or version of one would be a much better option and fairer option than the convoluted system that presently exists.

Posted by: shangps | April 12, 2010 9:28 AM | Report abuse

Is it really such a big deal that people used tax preparation software? I use it, not because my taxes are really that complicated and I don't understand them, but because my bank offers it for free, and it makes it a lot easier to file my taxes than to send in some paper form.

Oh, and flat taxes sound great in the abstract. However, much like with what happened with ACA (healthcare reform), wouldn't the legislative process alter the flat tax so that it wouldn't retain its simplicity?

Posted by: aawiegel | April 12, 2010 9:49 AM | Report abuse

Using the English version of Monopoly dilutes the point about US taxes. The pay income tax in British Pounds in the picture doesn't pair up with the story you are telling...

And anyway, the Brits have the VAT and pay major taxes every day, and not on April 15th.

Posted by: grooft | April 12, 2010 9:56 AM | Report abuse

I've worked at one of these places. Its a just payday lender with a marketing strategy that throws in a 'tax return' too.

Also evil: GOP who create lots of 'tax relief' giveaways through deductions, and they claim that its progressive rates that cause the complexity.

Posted by: yoyoy | April 12, 2010 10:01 AM | Report abuse

I've never understood why so many people use tax preparers. Our return is moderately complex, and it takes me a couple of hours using Turbo Tax. I use software to ensure that my math is accurate, honestly. Well, that and to avoid having to hunt down various paper forms.

Posted by: jaye_eldridge | April 12, 2010 10:04 AM | Report abuse

The last three years I have used the software. It's a huge benefit. My taxes are probably on the more difficult end of the spectrum. In the past just figuring out which forms I needed and getting them all together in one place took a month. I think even if we had just a one-page tax form I would still like the option to file it electronically. The IRS should offer the service for free, though.

I pay. I think everyone should pay a share even if it's just a little bit. Too bad I am not of a coddled constituency so I have no special deductions but that's a rant for another day, I guess. Maybe it's the fact that our safety net is so piss-poor that we have to exempt half the population from federal income tax to make up for it. But we also end up exempting a lot of well off people in our convoluted system, and this, too, is not fair to those who pay.

Posted by: luko | April 12, 2010 10:19 AM | Report abuse

Does the "tax preparation software" include e-file? Because that would make a huge difference.

Posted by: rusty_spatula | April 12, 2010 10:42 AM | Report abuse

@yoyoy: "GOP who create lots of 'tax relief' giveaways through deductions"

Actually, the recent Democratic 'tax cuts' were all temporary credits, deductions and other forms of heavily-qualified relief, rather than the straight out tax cuts, which is the favored strategy of Republicans. The GOP has generally preferred just cutting taxes, rather than creating additional complexity by increasing deductions. The biggest reduction in deductions and loopholes was under Reagan, and at one point even getting rid of mortgage interest and charitable deductions was discussed.

To be fair, though, tax complexity is a bi-partisan effort. There is a great deal of power in being able to craft tax code, and the more complicated both parties make it, the more lobbyists need to truck in the money, free travel and fancy dinners.

That being said, I always use a tax preparer.

Posted by: Kevin_Willis | April 12, 2010 11:05 AM | Report abuse

The only way our tax system will ever be simplified is if we pass a law that requires every Congressperson to sit in session doing their own taxes manually while the capital remains in lockdown. I won't hold my breath. Seriously, though, tax software makes life a lot easier by providing all the forms, avoiding form-filling mistakes, and doing all the simple math. Plus, e-filing is a lot faster, cheaper, and safer than mailing all that stuff.

Posted by: AuthorEditor | April 12, 2010 11:15 AM | Report abuse

Exactly right. I have a Masters degree, and the only deduction I take is mortgage interest. (This year I took the credit for new windows.) I use tax prep software solely because I trust it to interpret the forms better than I trust myself.

Most people's primary gripe with the government is over taxes, and tax prep is at least as much to blame as the dollar amounts paid. People intuitively understand that any system where how much you pay is determined in large part by how good you are at filling out the forms (especially at the higher income levels) is inherently unfair.

Posted by: dlk117561 | April 12, 2010 11:23 AM | Report abuse

My taxes are about as simple as they can be. With our mortgage paid off I am back to taking the standard deduction these days. But the design of the forms and the instructions themselves are intimidating. For AMT you have to fill out a worksheet to determine if you have to fill out a schedule? Jeesh. And to take the standard deduction you also have to file a separate schedule if you want some credit for property taxes paid. And then just how my lines does it take to compute the value $1,000?

Look, I understand that the forms themselves are meant to be "idiot proof". But every instruction is down to such a trained seal level of detail (If line 4 is greater than line 5 and if you completed Schedule XYZ, see the instructions on page 36 -- and page 36 continues in the same vein), I find it paradoxically difficult to follow for reasons of sheer concentration. I have the same thought every year: These forms are simply demented.

The Tax Code itself is written in the same fashion -- 5,000 pages or so of onion skin paper -- and it is truly written to NOT be comprehended. (That's for tax lawyers and lobbyists you see.) But there is no reason to carry over this design philosophy to the tax forms, especially to the main 1040, AMT, and standard deduction.

Make a mistake somewhere on one schedule and you are erasing figures on 40 lines over 3 or 4 other schedules. That's where the spreadsheet recalculation function comes in, and I may actually make the investment someday. But that's a pretty damned specialized spreadsheet.

Posted by: sadtosay | April 12, 2010 11:26 AM | Report abuse

One reason for getting software or using a preparer is to stay ahead of changes. We do our own, pretty simple taxes. We look at last year's submission as a guide, which nearly led us to miss line 63 on the standard 1040, titled "Making Work Pay and Government Retiree Credits." This is a new step you use to actually keep the stimulus tax cut. I'm sorry they had to complicate it with the Form M, but there are valid reasons.

Posted by: wvng | April 12, 2010 11:36 AM | Report abuse

"But when people talk about the need for tax simplification, they overestimate the complexity of many people's taxes and they underestimate the role that fear and anxiety play in the process."

This observation fits my experience with taxes perfectly. My taxes aren't that complex. But every time I do them, I feel like a complete novice. Not having a complete enough understanding of our tax system as a whole leaves me parsing every sentence of the IRS instruction booklets and online calculators to the absurd point where I do sometimes start to question what the meaning of the word "is" is.

However, this problem is one that I commonly have with not only the IRS but a lot of government agencies where I feel like the information they generally provide is geared toward insiders rather than outsiders. I go to the IRS website, and I see tons of detailed information. But I see nothing that explains the fundamentals of the larger system and how I, as a taxpaying individual, fit within it. I think lacking that big picture view either forces into sweating the minutiae of the process or causes us to eschew the process altogether and get someone else to do the work.

Posted by: slag | April 12, 2010 11:48 AM | Report abuse

Using tax software online is easy and cheap. I give them a few bucks to remember our info for next year so I don't even have to fill out a form from year to year.

I file a simple Schedule C for my business, other than that our taxes are fairly ordinary. Using tax software I don't even have to do any math. And at least once the software caught something on my state filing that I would have overpaid.

Again: easy and cheap. I got the whole thing done in half an hour in February, e-filed, and then had our refunds in ten days. There's no reason not to use online software.

Posted by: jnfr | April 12, 2010 12:47 PM | Report abuse

I would have:

1. The taxes automated and pre-figured, but modifiable for compelling arguments why they should be higher or lower.

2. Combined with a yearly census taking. No reason the Income Tax return and the census form cannot be one and the same.

Posted by: RealTexan1 | April 12, 2010 3:38 PM | Report abuse

I finally plowed through ours and those of some family members. I use software, and its a real time saver. I don't have to go poking around at the IRS website or fill out their horrid mind-numbing forms. We got five free e-filings with our software, and I used them all. We used to use a professional preparer, but actually the toughest part of the whole process is just getting all the information together.

Our tax system is insanely byzantine. If I were a fiction writer, I couldn't make some of this stuff up. Millionaire retirees can get a higher personal exemption than a 20-something making minimum wage. Tankless water heaters can get you an energy-savings deduction, but a water efficient residential tank heater can't. I'll spare the rant, but there has to be a better way. I think that AuthorEditor has the right idea:members of Congress should be forced to their own taxes.

Posted by: Beagle1 | April 12, 2010 5:09 PM | Report abuse

"substantial minority of Americans either don't pay income taxes..."

And we wonder why the tax code has to be 3 million words long. To make exclusions for both the Poor, and the Rich trying to get out of paying for the poor. All that does is make us "middle class" Americans spit up in our mouths when we think about having to do taxes. FLAT SALES TAX across the board would limit this Tax Code to what, 5 words?

Posted by: gjconely | April 12, 2010 7:14 PM | Report abuse

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