Okay, so I get the reason why NOWADAYS IRS can’t tell you how much taxes you owe is lobbying. But how did it work BEFORE computers? Did you file your forms and IRS agents checked them one by one, and it was just most efficient to check taxes instead of calculating them? How did we get to the situation where the IRS checks the taxes instead of calculating them? I’m genuinely curious, because that’s a recurring theme worldwide.
We have a “voluntary” tax system in the U.S. – that’s always been the situation. “Voluntary” doesn’t mean that that you can choose to not volunteer to pay your taxes. It mostly just means that the way we run things, by default, it is each citizen’s responsibility to calculate and pay their taxes each April.
American taxpayers filled out 1040 forms in the days before computers, a lot like they do now. The IRS selected certain fillings for audits, just like they do now – sometimes because of an apparent discrepancy, and sometimes just at random.
It would be a lot more work, take a lot more resources, and be prone to a lot more error and lawsuits, if the IRS tried to calculate everyone’s taxes for them. Even now that we are in the days of computers, it is much more efficient for the IRS to only audit a fraction of the filings submitted each year.
I’m also pretty sure our “voluntary” tax filling system has something to do with the Fourth Amendment and other privacy concerns. A lot of Americans very strongly believe that it is not the government’s place to be all up in their private business.
– EDIT to add:
There is a difference between whether it would be possible for the IRS to calculate individual citizens’ taxes and whether we should abandon our voluntary tax system for one in which the IRS simply calculates the taxes owed by every citizen and send us each a bill. My original response was intended to address the latter, but now I’ll say something about the former:
For someone whose single source of income is a job working for someone else, of course it is possible for the IRS to calculate your taxes. You’ve already volunteered all the information the IRS needs to do so. Your employer has already told the IRS exactly how much income you’ve earned and exactly how much of it you’ve had withheld for taxes. Remember when you signed that withholding paperwork with the HR department on your first day? That was the moment when you personally volunteered your income information and payments to the IRS. You’ve literally already been reporting your income and paying taxes on it ever since.
The way taxes work in practice for a single-income employee does not reveal the potential complexity of tax accounting for individuals who are self-employed, who have multiple sources of income, and anyone who doesn’t want to make regular fillings and withholding payments throughout the year. The tax situation for single-income American employees is not the situation for all Americans. Not everyone has an employer who calculates their taxes and pays installments for them throughout the year.
It is common for Americans to have a single job with an employer who calculates and pays their taxes for them. This makes it very easy for the IRS to know exactly how much the taxpayer owes (or is owed) at the end of the year. If it ends up feeling to like this is the same thing as the IRS calculating your taxes for you, however, I’m guessing it’s because you forgot that it’s actually your employer who’s been doing that accounting job for you all along, with each paycheck.
if the IRS tried to calculate everyone’s taxes for them
The IRS does calculate everyone’s taxes without an audit. If you mistype a bank statement you will get a bill or a check from the IRS (depending on whether the error was paying too much or too little).
An audit is completely different than the typical, "you typed $1000 in bank interest but you only really received $100 so here’s a check for the difference in taxes. This has happened to me many times over the years. It’s why I no longer get stressed over taxes because I know the IRS will just send me a bill or a check in 6 months to fix any mistakes.
The IRS calculates an employee’s taxes based on the income and withholding information provided to the IRS by the employer. The employee “volunteers” his tax information (and IRS witholding payment, if any) with each paycheck. The accounting for all this is listed right there on the paystub.
Yet many other countries do in fact calculate taxes for their citizens. You just need to check it and sign.
Not exactly, since the IRS provides tons of credits and deductions for things that aren’t inherently trackable, like credits for upgrading your home to be more “green,” asset depreciation, or any other of the thousand random things they incentivize
If you need to check it, then maybe they are not calculating your taxes for you, so much they are taking their best guess and asking you to sign off on it. If their best guess is as good (or better) than yours, there is no difference in practice. But there is still a difference in principle: whether a citizen is permitted to declare their own income or whether the government is obliged to determine it for them.
The IRS is confident it can do direct file for most american returns, which is why its running a pilot program this year to do just that.
Not in the Netherlands, there it’s all calculated for you and you just do the checking. If you have a more complicated situation like self employment or other stuff you may want to hire an accountant that will not only double check but also make sure you get the best outcome by doing some strange wizardry but for most people it’s literally just go online, check the salary numbers etc, click okay and get some cash back to your account.
Too bad the Belastingdienst (Dutch Taxservice) is a massive shitshow on pretty much anything else. Their hardware is so damn old new tax laws can’t be passed, because it would break the systems. Of course this is more the fault of shitty upper management and poor political will to do anything about it.
They should pass laws that intentionally break the IT systems, then you’ll eventually end up with an IT system that doesn’t break.
Can’t speak for the American IRS, but in my home country they audit some declarations at random, specially the parts they don’t have in their system, like checking if professional deductions are valid or if there’s anything that indicates some foreign income wasn’t declared. Before computers the system was probably more or less trust based for most cases.
