I use Taxact.com. I chose to pay $168 for the service this year. I say I chose because there are choices in the amount of service that you can pick from, and the level I chose allows me face time with a real person if I get audited or disallowed by the IRS. They also stand behind any mistakes that are made if the software was wrong. I’d give them a mixed review on the software, but the nice thing is the continuity from year to year, so I feel sort-of locked in to them at this point.
I have had my tax return “fixed” by the IRS 3 or 4 times. A couple of times they sent me an extra refund of enough money to buy myself lunch. Twice they explained that I missed something on my tax return, and as a consequence I owed more money, and I agreed it was my mistake. I only paid the extra tax plus like 1% or 2% not as a fine, but as an interest payment. I always thought the IRS was quite reasonable to deal with.
IRS sounds nicer than our Canadian counterpart, the CRA.
CRA slapped a 25% fine on my wife’s overdue taxes in addition to late payment interest. I thought of fighting it because it was due to the late filing of a slip on their site by our bank. However the total dollar amount wasn’t worth it.
It was more the principal of thing. CRA accused her of tax evasion. The slip wasn’t on their site by its due date so was missed when our tax preparation software downloaded all our slip information from the CRA site. We could have gone after the bank I suppose but not worth the effort: we just moved our money from them to our investment manager as punishment for their tardiness.
The IRS has a reputation for being awful, but it really depends so much on who you get. I don’t think there’s a scenario where they could fine you 25% though even if they were trying to be as nasty as possible.
The state of Michigan, on the other hand… 25% is their standard fine if you did not make estimated tax payments. They knock that down to 10 or 15% if you made some estimated payments but they were insufficient.
It’s not about you, it’s about their numbers. They look better by getting higher close rates, regardless of the dollars that are brought in. It’s far easier to get a 90% win rate by accusing 10 lower-than-median people of evasion and get 9 of them to just throw up their hands in despair because the fight is worth less than the fine of 20 bucks or something than to accuse 10 higher-than-median people of evasion and have like half of them be willing to pay a professional (lawyer or accountant) a couple of hundred bucks because their fines are in the tens of hundreds, resulting in some of them successful for the citizen and an ultimate win rate of 60% to 70%.
Not sure if the IRS works off of close rates, but it’s a similar concept in the US.
the odds of audit for returns filed by those earning less than $25,000 in 2022 was 12.7 out of every 1,000 returns filed. For all other filers, the rate was 2.3 for every 1,000 returns filed. That means low-income workers’ chances of being audited were about 5 ½ times that of all other filers.
It’s harder to audit the rich and the IRS is woefully understaffed and underfunded, so they go after the easy small fries and ultimately miss something in the range of $400B-$1T of taxes owed annually depending on the year and methodology of a given source.
Funding the IRS is the single best dollar-for-dollar return on government expense there is.
They audit low income returns because they are usually eligible for the most benefits and take the most deductions. Multiple years of $0 tax filings is gonna get you flagged for an audit
I’m no expert on the IRS, just going off of what I’ve read:
As the report said, “this group of taxpayers have historically been targeted not because they account for the most tax under-reporting, but because they are easy marks in an era when IRS increasingly relies upon correspondence audits yet doesn’t have the resources to assist taxpayers or answer their questions.”
It’s an automatically generated correspondence audit
You make it sound like they are spending all their man hours trying to claw back a couple bucks from some poor bum living in the hood
I’m more interested in seeing IRS manhours spent on people making under $25k vs over
All a correspondence audit means is that you likely made a glaring error on your tax return. It’s not surprising to me that less educated people are more prone to making clerical errors
Low income folks also probably have the most issues. They’re probably the most likely to have both parents claim the same kid as a dependent, or forget a W-2 (which is a lot easier to do if you have 8 or 10 of them than if you have only 1 or maybe 2 the year you switch jobs). Low income folks also have more complex tax returns than your average actuary due to (probably) qualifying for the Earned Income Tax Credit and other tax credits and they are far more likely than middle & upper middle class to have self-employment income.
They’re not paying accountants so they’re also more likely to make a mistake self-preparing.
At VITA I had a gal come to me because she’d filed with TurboTax but TT neglected to calculate the self-employment tax on her self employment income. So her refund was considerably lower than TT had calculated, and the IRS had (quite reasonably) rejected her erroneous TurboTax return. So we fixed it and she was disappointed to have a lower refund but I was like “yeah, but you’re actually going to get this one!”
I was pretty shocked at TurboTax’s error, to be honest. I saw how she’d answered all of their questions and the income was clearly subject to the SE tax and none of her answers should have indicated she was somehow exempt from it.
Poorer folks are also more likely to gamble (my record is 407 W2Gs on one tax return… I think 403 of them from slots) and have unemployment income or jury duty pay that they didn’t realize was taxable.
Correct… there are certain things they are going to 100% catch every time.
Miss a W-2 or 1099? Two people claim the same dependent? Make an error in your calculation of the EITC?
That is going to get automatically flagged 100.0000% of the time with no human intervention whatsoever.
If you claim more charitable deductions than you actually donated, or invent some bogus business deductions or say that your HSA or 529 withdrawal was for valid expenses when it wasn’t or dishonestly inflate the basis of the investment that you sold… that’s not something their software is going to flag and catch. That requires human intervention.
So if you look at a count of returns flagged I’m sure it skews towards low income. But if you look at labor hours devoted specifically to fraud, I’m sure it’s a very different picture.
EITC, Savers Credit, Dependent Care credit are all pretty popular. It would be a pretty fundamental shift to allow more than one parent to claim a kid, or have the kid not affect the tax return. If we’re going to have the safety nets of Social Security & Medicare then small business income should almost certainly be a part of it.
The one thing I will say is that the IRS should make it easy for a form to populate with everything they do know about you. All your W2s & 1099s for sure, although in the case of some you’d have to have the option to redirect it.
A 1099 or W2G might or might not belong on a Schedule C.
But you could at least figure out if you’re missing anything before you file. It sounds like Canada has that already. We should try to do likewise.
Load it up with disclaimers that we taxpayers are still responsible for missing info & all… but it would catch a lot of inadvertent errors if taxpayers knew they were missing the W2 or 1099.
In a lot of ways that actually makes it MORE complicated, but perhaps less error prone as a lot of dumb mistakes will be caught.
Interesting thought - my experience is very US-centric, and I have a passing familiarity with Canadian taxes.
But across the globe, are there countries with more complicated taxes than the US? Or are we unique due to the tax filing prep lobbies?
I understand a large segment of the population in a number of countries just verify, “The tax bill you sent me looks fine, government, no change” unless something does look wrong or they have a nonstandard situation.
How does the US compare globally? Is there any country of note with more complex tax law?
One problem in Canada is, if you innocently file your return not knowing you are missing a reporting slip, you get treated the same way as someone knowingly evading taxes. However the tax authorities can’t distinguish between innocent and deliberate evasion so must treat both cases the same way: a 25% penalty on top of the late payment interest charge. You wouldn’t go to jail though (hopefully) over a reporting slip that was not included in your initial tax return just because it was filed late.
