There’s Got to Be a Better Way

Blogging, business, lessons learned, United States 2 Minutes

I just finished my tax returns for the year (federal and state), and while it’s not that difficult when using a software package like H&R Block’s, it’s still a bit time consuming, and then at the end, there is still the printing and mailing to do.

I have yet to meet anyone who gets excited about doing their taxes, and many people hire someone to do their taxes.

According to an article in the Atlantic, several years ago the White House estimated that American taxpayers spend 7.6 billion hours and $140 billion a year figuring out what they owe the government and paying people to help them owe less.

So I started wondering how other countries do it, and what I found was eye-opening.

  • Eight OECD countries, including Finland and Norway, fully prepare returns for the majority of its taxpayers.
  • In Estonia, it takes the average person five minutes to file taxes.
  • In Sweden, the vast majority of taxpayers don’t do battle with tax documents and fine-print questions about itemized deductions. They just get a document from the government with all the relevant information already filled out. Some even get a text message with their prepared tax information, and if they respond “yes,” their taxes are done.
  • For most people in New Zealand, they don’t really have to take any time out to take care of their taxes every year.
  • In the Netherlands, a person simply goes online to check their tax situation. The government’s filled in every line. If the numbers look right, he clicks OK. It takes five minutes.
  • In Japan, you get a postcard from the IRS that says, we think you made this much. We withheld this much. We owe you a refund of that much. We will put it in your bank on April 1. It takes one minute, if you think the numbers are right.

So why can’t we implement such systems in the U.S.?

Well, I am sure companies like Intuit and H&R Block would be upset, as would the tens, if not hundreds, of thousands of people who offer tax preparation services. And I’m guessing they have strong lobbies to help maintain the status quo.

I think the first step needed to have such a system would be to drastically simplify our current tax code by eliminating the many “loopholes” that exist.

Once that is done, it should be easy to study what these other countries are doing and work to implement such a system here.

I know I wouldn’t miss doing my annual tax return. I’d love to hear from people outside the U.S. what their experience is with taxes…

Although it did give me something to write about…

Sources:

PBS
The Atlantic

Published by Jim Borden

A 60-something guy trying to figure out the world, and his place in it. Happily married for 40-plus years, three wonderful sons. Accounting teacher, fitness enthusiast, blogger, reader.

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34 thoughts on “There’s Got to Be a Better Way”

  2. I used to do our taxes for many years. In some ways, I miss that moment of truth when I saw what the magic number was. I tried to come in at a place where I was getting or writing a small check. While it’s exciting to get a big check back from the IRS, I’d immediately think, “I could have already had this money earning interest.” On the other hand, the worst feeling from a psychological point of view is to have money taken out of your check all year long and then find out that you still owe a large sum at tax time.

    When our finances got more complicated, I waved the white flag. Now I can’t imagine doing our taxes. Then again, I don’t teach accounting.🤣

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  5. An interesting post, Jim. I had no idea that other countries had such simplified tax reporting. Why do we make everything so difficult and convoluted? I guess that is so big corporations and wealthy individuals have all those tricky tax loopholes to take advantage of. I am all for a simplified tax code that insures every one pays their fair share. Not sure it will happen in our lifetime though. Great post!

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  6. In the UK I never had to fill in a self-assessment when I only had one job and Personnel took my PAYE (pay as you earn).from my monthly salary, along with my NAtional Insurance (which was originally for the NHS, but it all goes into one pot these days). Unfortunately, any little extra you earn (eg. sell one book on Amazon) has to be declared and that leads you into self-assessment. I used to do ours but now I pay someone to do it and get a much bigger rebate, claimed with the crediblity of a guy who knows what he’s doing when he fills in my tax return.

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  7. My brother prepares taxes for a living. Many of his customers are people who just work one job, and that’s their only source of income. Their tax return is very simple and easy to figure out, and yet for some reason they need help. Some people just aren’t good at paperwork, no matter how easy you make it for them.

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  8. I am so with you on this, jim, for so many reasons. I am a paperwork procrastinator, math challenged, and loophole adverse, therefore I hire someone each year. my job is to hunt and gather info to pass on to her, and I’m happy to have her take it from there.

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  9. Hi Jim,

    Countries that have relatively simple income tax returns rely on somewhat more complicated business taxes like VAT taxes.

    Chances are that your 2019 tax return was simplified by making the standard deduction of greater benefit than itemizing deductions. Once a taxpayer is relatively certain that itemized deductions are losers preparing tax returns becomes almost as simple by hand as tax preparation software unless you have some messy revenue issues.

    Ever since TurboTax lost SS numbers and PIN numbers to hackers I don’t advise electronic filing of tax returns by tax preparer companies. I was one of the many victims who had a bad guy file for a tax refund in my name. Fortunately the IRS suspected that my mailed-in return was my legitimate return, but the bad guy got cash from the IRS nevertheless. I don’t know how big the bad guy’s refund was on a phony tax return enabled by TurboTax, but I imagine the IRS lost quite a lot. I got my tiny legitimate refund from the IRS.

    What is sad is that TurboTax is trying to sneak in ways to charge taxpayers who are supposed to get free tax software from TurboTax. TurboTax is quite unethical in this regard.

    I now like H&R Block software better than TurboTax. But I will mail in my printed returns to the IRS from now on.

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    1. Bob, you are right that my taxes got much easier with the increase in the standard deduction last year. I’ve been using TaxCut/H&R Block for years, primarily because it was about $5 cheaper when it first came out. And then once you start with one, it’s usually a pain to switch to another. I file my federal electronically, but my state by paper.

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  10. In the UK we operate the PAYE system (Pay As You Earn) which collects tax due from your monthly salary or pension. Tax returns are only required for higher rate taxpayers or for those with more complex arrangements, like the self-employed. So my income tax – and that of the great majority – takes just a few moments to check when I receive the annual notification. If you had that same system there wouldn’t be a need for Presidents to hide their tax records from the people.

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      1. I’ve been part of it since I was 21, and it has never failed me. I don’t understand why other countries seem to complicate tax collection so much.

        He’s probably banking on being consigned to the dustbin of history before he has to release his records…

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  11. I generally procrastinate in preparing my state and federal income tax returns. If I owe additional tax, I want to keep “my money” as long as possible. Jim, your discussion leads me into a deeper discussion about all of the caveats of American free enterprise. Have a blessed week!

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  12. Simplifying the tax code makes way too much sense. Loopholes are how politicians get contributions and reward supporters. Loopholes also result when politicians use the tax code to incentivize certain behaviors.
    I bet countries with simplified tax codes and easy filing systems also don’t have our ridiculous campaign fiance system.

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  13. Returns!
    Nobody likes to pay even taxes…

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