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PaperclipPerfector  2d ago (text post)   1960 thread views

Small-Scale Question Sunday for October 12, 2025

Do you have a dumb question that you're kind of embarrassed to ask in the main thread? Is there something you're just not sure about?

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Can someone please steel-man the American system of making individual citizens responsible for filing their taxes in a hopelessly complex tax code, then punishing them for making mistakes? From where I stand, it all just feels like racketeering by H&R Block et al. to extort fees year after year.

Some Benefits:

  1. People can be guilty of two crimes when they don't pay taxes: not paying the taxes, and lying about the amount of taxes owed. Which also makes it easier to catch criminals who are making lots of money illegally. (Al Capone Argument)
  2. Its only hard to pay taxes if you are trying to maximize the amount you are not paying. You can very easily give the maximum amount you suspect you owe, and if you are wrong the government will send you a reimbursement for taxes you overpaid. (Kennedy, do your part argument)
  3. Special interests can be given special and hard to follow exemptions that are only meant for them, and require a bunch of hoops to claim. You can then write off those estimated tax costs as something you did for the consumer while not having those full costs get reflected in the actual budget. (Cynical jack ass argument)

There are more special interests that benefit from complex tax systems than just H&R block.

I think he was referring to a system they have in places like Sweden, where if you're a normal W-2 employee the government would look at your W-2 income and take the standard deductions and do all the stuff that they will correct anyway if you did it differently and didn't get the maximum refund. The first time you claim a child they could keep track of the age and take the deduction every year until 18. If you wanted to take more deductions than they were offering, then you'd file your own return. But most people wouldn't have the need to do that. The predatory thing comes with H&R Block and Jackson Hewitt opening up places in the 'hood where they'll offer to do poor people's taxes so they can charge a percentage of the EITC they recover.

I don't know how it is in Sweden, but in the US I am not a big entrepreneur but I have to take into account, beyond my salary:

  • Freelancing income - plus expenses, plus SEP IRA linked to that income
  • Income from bank deposits
  • Income from stock (is taxed differently from above and has a myriad rules like short/long term, wash sales, etc.)
  • HSA
  • IRA
  • Local tax deductions
  • Mortgage deductions
  • Charity deductions

It became a bit simpler recently when standard deduction had been raised so most of these deductions aren't worth itemizing anymore, but before that I had to deal with it all. Obviously my workplace has no idea about any of it and can't deal with it. Some of them (like taxing income from bank deposits) can be done by the banks, but other stuff can only be properly calculated by somebody having the full picture, i.e. the IRS. Oh yes, and for many of those the actual tax level depends on my income. And not just plain income, but modified adjusted income (real term) - to calculate which you need to check a couple of dozens of rules on which parts are "modified" and which are "adjusted", and all of it depends on all of everything else, pretty much.

And it's not pocket change either - if it's not done right, the difference can easily be hundreds and sometimes thousands of dollars even for mid-tier income like mine. IRS could calculate it all (well, except state taxes which is different rules in every single one of them) - but nobody else, realistically, could do it without me giving them all the data and them recreating what IRS has from scratch. Which is what H&R, Intuit and such are charging the money for.

And to be clear here - my taxes are very simple, comparatively. People have massively more complicated tax situations that I do. I'm still in the DIY zone, people with more complex taxes just hire somebody to do it for them, because there's no way a layman can figure it out.

Bank reports mortgage, interest paid on deposits, mutual fund trades and such directly. Reporting stocks can require more manual work depending on broker / exchange. Arrangements exactly like HSA and IRA don't exist here, but if they did, I presume the service provider would report the details to tax authority.

National tax authority keeps track of applicable local tax code arrangements, but I suppose it must more complicated in a true federal state like the US.

I presume freelancing income, other expenses and stuff like charitable donations you have to declare yourself everywhere.

nobody else, realistically, could do it without me giving them all the data and them recreating what IRS has from scratch. Which is what H&R, Intuit and such are charging the money for.

So why citizen needs to recreate the IRS calculation to submit the paperwork?

I addressed this in another comment - because when the system had been initially created, IRS wasn't supposed to have most of the information - at least not routinely, they could get a court order or such if they have reasonable suspicion you're cheating, but otherwise they wouldn't have the full picture. Since then, a lot changed, and now pretty much everything is reported to the IRS. But the system is still arranged as if IRS doesn't have the full picture, even though it does, and since now there are massive companies built essentially on tracking what IRS has and re-implementing it in a user-friendly way - and the IRS itself does not implement any user-facing interface to it - we have barriers to change. IRS would have to budget some investment (not large on the scale of federal government, but not insignificant in absolute numbers, probably tens of millions of dollars at least, maybe more) to implement a user-facing system that could be efficiently used by taxpayers, and the incumbents would lobby very hard against it, claiming this already exists as a private solution (which is true) and the feds squeezing out private business is unacceptable (which is usually true in general, but in this particular case is not, but they can make it look true).

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