I’d be happy with a system like this, as long as they made it very clear WHEN you should do it the old way. For example:
“Our estimate of your income may be too high in certain situations, for example if you are a business owner, independent contractor, or receive income from RSU or ESPP sales where the tax basis reported to the IRS is missing or inaccurate. In those cases, you are encouraged to fill out your tax return using the tool of your choice” (Hopefully with links to some options).
Otherwise, there’s going to be a lot of tech workers who don’t understand RSU taxation paying thousands/10s of thousands of dollars extra in taxes for no reason. (And yes, I realize some may think this is a feature, not a bug.)
Simplifying the tax code would go a long way. We don't need to go all the way towards some flat consumption tax, simply eliminating tax deductions, credits, and write-offs would make calculating a person's tax burden much easier.
Don’t deductions, credits, etc allow the government to incentivize citizens to behave in certain ways? Are you implying that it shouldn’t be in the business of incentivizing behavior?
Well yes, I would absolutely say the federal government shouldn't be in the business of manipulating markets and consumer behavior. That was never part of our government design in the first place, unless you consider dealing with interstate commerce disputes to fall under that umbrella.
Practically though, our tX system and economy is much too complicated to be able to accurately say whether incentives through deductions and credits are a net positive. We can say how expensive they are, but how do we measure the value added by pushing consumers in one direction or another? And if we can't measure its value should the government have that authority?
It’s often the case that you sell a block of RSU stock, and the broker reports the entire sale as a capital gain (e.g. if you sell $50K, then it shows up as a $50K capital gain on your broker’s 1099). But in reality, the gain should only be the difference between the price it was when it showed up in your account and when you sold it (which can actually be a loss), because the basis is already included in your W-2 as earned income.
My recollection is they report it on a “supplemental information” form, not directly on the 1099. If you just do a naive import in TurboTax or similar, you’ll overpay your taxes by thousands.
The IRS requires your broker to report a different cost basis to you than you are entitled to use. It is government-mandated disinformation, not a misunderstanding.
And that's probably the main reason it isnt done. The IRS assumes nearly no one would report extra taxable income if they came out and said all of the things they already knew (and by implication, dont know).
Well I think that depends on what is being provided, most suggestions I've seen only talk about cover the simple case of some W-2s and other income sources already reported to the government and taking the standard deduction. If that's the case then the government doesn't _have_ to provide everything it knows, it would be on you to know if you have income that wasn't already reported to the government and file yourself, and it would be the same as now in that you don't know if they'll find out about your other income.
But also, there's still the risk of getting audited either way. Just because they apparently don't know about some income _now_ doesn't mean they'll never figure it out later.
Right. I was assuming most people would choose the lower of whatever the IRS said or their calculations showed. And that's fine, presumably that would be taken into account on the government side in order to get enough money.
Here we go. American exceptionalism again. No surprise here. It isn’t done because your government is stupid and corrupt. Look at the myriad other examples of this happening in other countries.
Sometimes the US truly is exceptional -- name another country that has more guns than people and, critically, enshrines private ownership of guns in its constitution.
