Let the government start your income tax return.
The important data from your employers and financial institutions has already been sent to the government’s computers. Why should you have to re-enter it on your income tax return?
Norway sends out a pre-completed tax return form to all tax-liable wage earners.
In the United States, taxpayers are still required to perform the old-fashion job of preparing a return from scratch. Other countries now offer taxpayers a beginning return template containing all the information that has been collected by the taxing authority.
During the 2008 presidential campaign, candidate Barack Obama proposed giving taxpayers “the option of pre-filled tax forms to verify, sign and return.” However, President Obama may find it difficult to soon deliver on that campaign promise.
The Internal Revenue Service says “it is not feasible at this time” because the agency receives the W-2 data from the Social Security Administration and 1099 data from financial institutions too late in the filing season, “much later than most eligible taxpayers would be willing to wait.” A private business would never be able to use the excuse that one of its own divisions was preventing it from reporting taxpayer information on time. Only in the bizarro world of the U.S. Treasury could that be used an excuse.
Tax processing specialists say that if the federal government implemented such a “pre-preparation” program, it would cover more than 100 million taxpayers each year and save $2 billion to $4 billion annually in tax preparation fees, not including the value of the taxpayers’ time used to fill out forms. The frustration that many taxpayers feel in compiling the information would be substantially reduced as well.
California began a small pilot project to offer a pre-filled state tax return, called ReadyReturn, for qualified taxpayers.
It cost California an average of $2.59 to process a paper return, but only 34 cents to process a ReadyReturn. The program saves about three times as much money as it costs to operate.
Intuit, which makes TurboTax, has spent millions of dollars on lobbying in Sacramento since 2007 to kill ReadyReturn. A pre-filled income tax return takes away a substantial portion of Inuit’s revenue. Never mind that it would save the average taxpayer hours of work of accumulating the required information on his or her own. Like the drug dealer who does not want drugs legalized, Intuit does not want taxes made easier, either. The more complex the tax laws, the more money professional tax preparers make.
You might be concerned about the “Big Brother” aspect of the IRS preparing your tax return. However, they already match the documents up, after the fact. Information that is missing or incorrect causes a huge portion of IRS correspondence and audit triggers. Everyone would be better off if you were able to start with what the government knows at the beginning of the return preparation process.
Recommendation: Require all taxing authorities and government agencies to move up the reporting deadlines to January 31. That is what the IRS requires of employers. I know governments are generally more inefficient than businesses, but governments should be held to a more rigorous, not less rigorous, standard.