This year’s tax season looks set to be a gruesome one. The IRS has agreed to give Americans an extra month to file their tax returns, but that will hardly be enough to help them and their accountants navigate the new code.
Why it matters: The U.S. tax filing system is painful and complex – largely by design.
Situation: The new tax law changes include everything from health care costs to child tax credits – all during a year when the pandemic left millions of Americans living more complex financial lives than usual, thanks to job cuts, unemployment insurance, incentive checks, and the like.
What they say: This year “was really a lot more complicated than usual,” said Julio Gonzalez, CEO of Engineered Tax Services. “We weren’t sure if incentive controls would be taxable. We had so many individual changes. It was a big challenge.”
Details: the code changes must be translated into explicit guidelines from the IRS and reflected in updated tax filing software. That has not happened yet.
- The updated software is expected to arrive in the next week, although that only applies to federal taxes. State and local taxes are still in a gray zone – and it’s not even clear if all states will follow the FBI’s lead and allow an extension until May 17.
- The extension gives accountants time to start reading the new IRS guidelines for 2020, to train their staff, and to make good estimates of how much tax will be due.
- While estimated payments are scheduled for May, final returns can now be filed in October, after which time there should be much more clarity, both at the federal and state levels.
The big picture: Tax filing can be simple, free and automatic. Countries like the UK and Spain have “taxpayers’ returns without a return where they don’t have to file anything at all.
- The government knows its own tax code and knows how much you have earned, which means that for most normal workers, it should be able to calculate how much they owe themselves.
There are two reasons why the US is an exception:
- Intuit, the parent company of TurboTax, has run a hugely successful lobbying campaign spanning more than a decade to stop the government from making tax returns easy.
- Some Republicans Against Tax think simplifying the payment of taxes will make them less noticeable in the minds of voters, and as a result, voters will be less likely to lower them.