This year’s tax season is becoming a tough season. The IRS has agreed to give Americans an extra month to file their taxes, 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 complicated – mainly designed.
Game status: The new changes to the tax code include everything from health care costs to child tax credit – all happening during a year when the pandemic led millions of Americans to have more complicated financial lives than usual, thanks to job losses, unemployment insurance, stimulus controls, and more.
What they say: This year was ‘really much more complicated’ than usual, says Julio Gonzalez, CEO of Engineering Tax Services. “We weren’t sure if stimulation control would be taxable. We had so many individual changes. It was very challenging.”
Details: The code changes must be converted into explicit IRS guidance, and must be reflected in updated tax information software. None of that has happened yet.
- The updated software will be expected to arrive in the coming week, although this only applies to federal taxes. State and local taxes are still in a gray area – and it is not even clear that all states will follow the leaders and allow the expansion until May 17.
- The expansion gives accountants time to start reading through the new IRS guidance for 2020, train their staff and make good estimates of how much tax is owed.
- While estimated payments available in May, the final return can now be submitted in October, and then there should be much more clarity at federal and state level.
The whole picture: Tax returns can be simple, free and automatic. Countries like the UK and Spain have ‘return-free filing’ for most taxpayers where they do not have to file anything at all.
- The government knows his own tax code and know how much you earned, which means that for most normal employees it should be able to figure out how much they owe on their own.
There are two reasons why the US is an exception:
- Intuitive, the parent company of TurboTax, has been running an extraordinarily successful lobbying campaign for many decades to prevent the government from simplifying tax files.
- Some anti-tax Republicans think that simplifying the payment of taxes will make it less conspicuous in the minds of voters, and thus make voters less eager to reduce it.