I Despise the USA Tax System SO Much

[Maidensong]

How about this for a solution? Keep the current wad of crap and introduce:
The Alternative Simple Tax
You pay a flat 20%. You're done! All forms of realized income are included - no deductions, credits, carveouts, exemptions, yadda, yadda. Totally flat. ALL other taxes at all layers of govt and of all types are eliminated for anyone who files the AST.
Then, a special room will be created where the layer upon layer upon layer upon layer (fed, state, county, local) of bureaucrats and paper-pushing pinheads (and anyone else who wants someone else's earnings) can meet to duke it out with each other and figure out who gets what.
No complicated forms. No huge time requirement. No more headaches listening to everyone's endless theories about their "fair share" of what you earned and they didn't.
It's like single-payer for government! THIS is the single-payer we need.

Interesting... But even God Almighty only ever asked for 10%.

 

[2177V]

If it doesn't make sense, then it is politics.

Our tax code will NEVER be simplified...unless we do away with politics and special interests all together.

That is not going to happen. Wet dream... if you believe ordinary citizens can change it.

Every time a politician tries to simplify the tax code, that politician gets defeated by the rest of the corrupt politicians with special interests who are the majority in the House and Senate.

I hate to break this news to you but it is true in my opinion. This is why our tax code will NEVER make sense to ordinary citizens.

 

[Gumby]

If it doesn't make sense, then it is politics.

Our tax code will NEVER be simplified...unless we do away with politics and special interests all together.

That is not going to happen. Wet dream... if you believe ordinary citizens can change it.

Every time a politician tries to simplify the tax code, that politician gets defeated by the rest of the corrupt politicians with special interests who are the majority in the House and Senate.

I hate to break this news to you but it is true in my opinion. This is why our tax code will NEVER make sense to ordinary citizens.

Even more generally in government - one man's waste, fraud and abuse is another man's paycheck, and that second man is going to fight hard to keep it.

 

[athena53]

The hard part of doing taxes is gathering and maintaining the records anyway.

I realized that when I married and "inherited" the CPA my husband and his first wife had used for their taxes. (Both were financially clueless.) Once I provided all the records, receipts, etc. he pretty much used software to wrap it up. The final straw was that I called him in December and told him we'd married the previous May. On April 14, I kid you not, he called and needed two very large (to me) checks. One was $$ owed to the state of NJ because, having married, our salaries were "stacked" and one was taxed at the highest marginal rate. The second was a Quarterly Estimated payment. While I didn't expect him to do a full projection of our taxes when I called in December, a heads-up to let me know this torpedo was coming would have helped. Never used him again.

And if I may add one more thing that drives me crazy: I file as Single. Every threshold, cliff, etc. for IRMAA, standard deduction and other calculations is either double that for couples, or half- whichever works to my disadvantage. I get a standard deduction of $12K- couples get $24K, IRMAA hits me at half the AGI levels that it does for couples.

It would be nice if my mortgage, property taxes and utilities had halved after DH died but they did not.

 

[pb4uski]

Just to add another gotcha "IRMAA surcharge" Tax software programs don't warn you of the increase to Medicare based on other income thresholds: Selling that rental can really bite you in the rear!! https://www.investmentnews.com/wp-content/uploads/assets/graphics/CI1209021111.JPG

You can always appeal. While I previously thought that they would only allow appeals for the enumerated reasons, another poster here recently appealed based on a one-time increase to income like in your case and their appeal was accepted.

 

[pb4uski]

..... And if I may add one more thing that drives me crazy: I file as Single. Every threshold, cliff, etc. for IRMAA, standard deduction and other calculations is either double that for couples, or half- whichever works to my disadvantage. I get a standard deduction of $12K- couples get $24K, IRMAA hits me at half the AGI levels that it does for couples. ...

Get over it.

Why wouldn't a couple get twice as much income excluded as a single? Ditto for IRMAA.

I think you're somehow confusing deductions/exclusion from income with living costs.

 

[gerntz]

No. Looking at my income as a Landlord over half of it goes to property taxes, insurance and utilities.

We'd have never been a landlord if this was true for us given our mortgages are over 50% of income.

 

[gerntz]

And if I may add one more thing that drives me crazy: I file as Single. Every threshold, cliff, etc. for IRMAA, standard deduction and other calculations is either double that for couples, or half- whichever works to my disadvantage. I get a standard deduction of $12K- couples get $24K, IRMAA hits me at half the AGI levels that it does for couples.

Don't think there should be separate tax rates based on marriage status.

You realize that when IRMAA hits married couples it causes payments to rise on two people, not one as in your case, right?

 

[gerntz]

If it doesn't make sense, then it is politics.

Our tax code will NEVER be simplified...unless we do away with politics and special interests all together.

Perhaps I'm wrong, but I thought the higher standard deduction simplified the tax code for a lot of folks.

 

[scrabbler1]

One thing to consider is that tax simplification and tax fairness, in itself a moving target, are often in opposition to each other.


Take the tax treatment of long-term cap gains. We could tax it as ordinary income or not at all. The former is how many states handle it, making it simpler than the federal system with its lengthy, PITA worksheet, but would it be fairer to tax it solely as ordinary income when part of that income is due to the inflationary gain within it? We could tax it not at all, also simpler than the aforementioned federal system and its worksheet. But would that be fairer? The current federal system is far less simple but arguably fairer than either simpler extreme. Perhaps indexing LTCG but taxing whatever gain remains would be the most fair but would probably be more complicated than the current federal system.

 

[38Chevy454]

Perhaps I'm wrong, but I thought the higher standard deduction simplified the tax [-]code[/-] filing for a lot of folks.

FIFY
The recent change did not simplify the tax code to any real extent. It did make it easier for many to file using the increased standard deduction, as opposed to previously filing with Sch A deductions.

 

[clobber]

Perhaps I'm wrong, but I thought the higher standard deduction simplified the tax code for a lot of folks.

Very slightly. Now there are some people (maybe even lots of people) who won't itemize. Most or all of the stuff in my OP has nothing to do with itemizing. In fact, I have never itemized.

 

[pb4uski]

Perhaps I'm wrong, but I thought the higher standard deduction simplified the tax code for a lot of folks.

It did in that for many people the most complicated part of their tax return was Schedule A and the increase in the standard deduction and combination with personal exemption allowances ended up simplifying tax compliance for many Americans.

 

[clobber]

Here is another case in point. The IRS have just announced some proposed rule with respect to the ACA Premium Tax Credit and personal exemptions. I have loosely read the document, and have no idea what it means

 

[clobber]

Here is another case in point. The IRS have just announced some proposed rule with respect to the ACA Premium Tax Credit and personal exemptions. I have loosely read the document, and have no idea what it means

Ugh, and yet another one Somehow the default withholding for pensions and such (married claiming 3) is possibly changing. But I can't tell how.

 

[clobber]

I'm on a tear today. Here is a recently released, very long, very technical paper about minimum taxes - including AMT.

My favorite quote so far:

Instead, to thoughtful observers (whether or not this mattered politically),
it became clear that the AMT’s main influence on new enactments was to decrease public
understanding of them

 

[2177V]

Perhaps I'm wrong, but I thought the higher standard deduction simplified the tax code for a lot of folks.

Not necessarily. As an example: the standard deduction for a married couple is $24,000. People still have to check if their deduction is less than or more than the $24,000 standard deduction. The higher standard deduction is just that...a higher standard deduction. The only group of people who simplified their taxes are recently married your couple with no children, no house, no investment, etc.

If you look at the new schedule 1 (additional and adjustment income), you still have to complete and attach when applicable schedules C, E, F, SE or Forms 4797, 2106, 8889, 3906, 8917. For Schedule 2 (additional taxes), you have to complete and attach when applicable schedule SE, H and forms 6251, 8962, 4137, 8919, 5405, 8959, 8960, 965-A.

Fortunately, TurboTax figures out these forms. In other words, you still need a computer program to figure out your taxes unless you are in the most basic and low income group or are recently a young married couple.

 

[SecondCor521]

Not necessarily. As an example: the standard deduction for a married couple is $24,000. People still have to check if their deduction is less than or more than the $24,000 standard deduction. The higher standard deduction is just that...a higher standard deduction. The only group of people who simplified their taxes are recently married your couple with no children, no house, no investment, etc.

If you look at the new schedule 1 (additional and adjustment income), you still have to complete and attach when applicable schedules C, E, F, SE or Forms 4797, 2106, 8889, 3906, 8917. For Schedule 2 (additional taxes), you have to complete and attach when applicable schedule SE, H and forms 6251, 8962, 4137, 8919, 5405, 8959, 8960, 965-A.

Fortunately, TurboTax figures out these forms. In other words, you still need a computer program to figure out your taxes unless you are in the most basic and low income group or are recently a young married couple.

As a AARP tax aide volunteer tax preparer, I can tell you that it has simplified things in the sense that when you tell people who come in to our service what the standard deduction is, most of them immediately know that they're nowhere close to that number, that they won't be close to that number in the future, so they can essentially stop tracking all those itemized deductions that they used to keep track of.

Yes, the law could change back, and yes, they should keep an eye on the standard deduction. But for many many people they can stop worrying about tracking their OOP medical, state taxes, contributions to charity, safety deposit box, tax prep, etc. etc. and all the collection and maintenance of the associated forms and reports. It also means for us volunteer tax preparers that most of the time we don't have to type in a bunch of different numbers from a bunch of different forms and see if it's close. We can just take the standard deduction without all of that data entry (which then would need to be double checked for quality in our process) - after of course checking that they're not close.

Out of several dozen returns I prepared this year, there was only one client who was even close enough to where it was necessary to do some quick math, and IIRC that client didn't even exceed the SD.

(And yes, I know that AARP tax aide clientele probably are a different population in terms of those taxpayers who itemize or not.)

 

[clobber]

But for many many people they can stop worrying about tracking their OOP medical, state taxes, contributions to charity, safety deposit box, tax prep, etc. etc. and all the collection and maintenance of the associated forms and reports. It also means for us volunteer tax preparers that most of the time we don't have to type in a bunch of different numbers from a bunch of different forms and see if it's close. We can just take the standard deduction without all of that data entry (which then would need to be double checked for quality in our process) - after of course checking that they're not close.

Good post. Thanks

 

[USGrant1962]

Tax Foundation estimates ~31% itemized before TCJA, it is down under 14% now. I guess >80% are most basic and low income?

https://taxfoundation.org/standard-deduction-itemized-deductions-current-law-2019/

 

[Raygun99]

I do taxes for multiple clients. Raising the standard deduction and elimination of the 2% Misc was great for a large part of the population. It certainly made it easier to DIY.. No more Form 2106, (Truck Drivers not happy) No more "guessing" how much was donated to charity, no more "estimating" the value of that goodwill household goods value. Some still bring stacks of medical receipts believing it will help reduce taxes only to find out they don't come close to the thresholds. The toughest part is explaining that to them!! I hope it stays this way. Ill bet AARP tax help folks do too!

 

[scrabbler1]

I do the taxes for myself and 2 friends, as I have for the last 15+ years. For my ladyfriend, before 2013 sometimes she itemized, sometimes she took the standard. Her property tax deduction was once every 2 years, so there was a built-in bunching of that deduction which made the difference. When that disappeared, it was standard deduction all the way, as her SALT by itself wasn't enough. Raising the standard only increased the difference.


My best (male) friend had been itemizing since 2012, the year after he bought his co-op apartment. His mortgage interest and SALT put him over the SD amount. When his mom died in 2012, he used some of his inheritance to pay off the mortgage. His SALT and much lower mortgage interest kept him itemizing, but not by much. When the SD doubled in 2018, he switched to the standard.


My own situation is similar to my friend's. I had SALT and deductible medical expenses since 2008 high enough to itemize some years. Bunching some SALT had me taking the standard in other years. When the SD doubled in 2018, that put me out of reach for itemizing any more.


Nobody's taxes will become more complicated solely by doubling the SD. They will be either the same as before or become easier. If you have a change in your personal situation, that could complicate things including allowing you to now itemize. But that would have happened without the SD doubling.

 

[2177V]

As a AARP tax aide volunteer tax preparer, I can tell you that it has simplified things in the sense that when you tell people who come in to our service what the standard deduction is, most of them immediately know that they're nowhere close to that number, that they won't be close to that number in the future, so they can essentially stop tracking all those itemized deductions that they used to keep track of.

Yes, the law could change back, and yes, they should keep an eye on the standard deduction. But for many many people they can stop worrying about tracking their OOP medical, state taxes, contributions to charity, safety deposit box, tax prep, etc. etc. and all the collection and maintenance of the associated forms and reports. It also means for us volunteer tax preparers that most of the time we don't have to type in a bunch of different numbers from a bunch of different forms and see if it's close. We can just take the standard deduction without all of that data entry (which then would need to be double checked for quality in our process) - after of course checking that they're not close.

Out of several dozen returns I prepared this year, there was only one client who was even close enough to where it was necessary to do some quick math, and IIRC that client didn't even exceed the SD.

(And yes, I know that AARP tax aide clientele probably are a different population in terms of those taxpayers who itemize or not.)

Under the previous law for a family of 4:
Let's assume $4050 personal deduction times 4 persons = $16,200
Let's assume a typical mortgage deduction is $10.000
Let's assume a typical state income tax deduction is $4,000
Let's assume a typical property tax deduction is $3,000

All of these numbers can easily exceed $24,000 for a family of 4 and owning a house.

If most of your clients do NOT have many dependents nor a house with a mortgage, property tax, etc, then your comment is correct. However, you probably got the simple tax cases since you are a tax aid volunteer....and not a licensed tax professional.

Those simple tax cases are not representative of everyone...as you already stated. The $24,000 deduction do simplify taxes with relatively simple returns. As far as people with more complicated tax returns with numerous dependents, owning a house, owning a small business, investment returns, etc, the $24,000 deduction did NOT simplify their tax return very much.

 

[geeky_grrl]

Under the previous law for a family of 4:
Let's assume $4050 personal deduction times 4 persons = $16,200
Let's assume a typical mortgage deduction is $10.000
Let's assume a typical state income tax deduction is $4,000
Let's assume a typical property tax deduction is $3,000

All of these numbers can easily exceed $24,000 for a family of 4 and owning a house.

If most of your clients do NOT have many dependents nor a house with a mortgage, property tax, etc, then your comment is correct. However, you probably got the simple tax cases since you are a tax aid volunteer....and not a licensed tax professional.

Those simple tax cases are not representative of everyone...as you already stated. The $24,000 deduction do simplify taxes with relatively simple returns. As far as people with more complicated tax returns with numerous dependents, owning a house, owning a small business, investment returns, etc, the $24,000 deduction did NOT simplify their tax return very much.

In your hypothetical the family woudn't need to itemize anymore. Personal exemptions are gone so they would now only have $17k in itemized deductions. With the $10k limit on state and local taxes even some high earners don't have a reason to itemize anymore.

 

[jkern]

There is a long list of reasons why I dislike our tax system, but one that bothers me the most is how our Politicians get to choose winners and losers. Another issue I have is the relatively high cost. When I was working and considered to be in the top half of middle class, over 11 yeas ago, I calculated my total tax liability (Income tax, FICA, Property, Sales, gas tax, hidden taxes and government fees). I was paying about 45% of my gross in direct taxes. If I were able to calculate and add indirect taxation (all taxes, fees and legislation that gets passed through to the consumer) the cost of government would probably be around 60% to 70%.