Ten Miles Square

Blog

April 15, 2013 8:00 AM Happy Tax Day: How TurboTax Works to Keep Your Taxes Difficult

By Daniel Luzer

Why are taxes so hard? Part of the reason seems to be that tax preparation companies’ lobbying efforts ensure that doing your taxes are really complicated.

When doing your taxes you may notice that, if you’re like most people, virtually all of the information that you’re providing is already something the government has anyway. Why do you have to go through so much effort to show your work all over again?

In addition, if you’ve ever made a mistake filling out your taxes you’ll notice something interesting. It’s not like the IRS accountants just send the forms back to you and say “do a better job, citizen.” No, they usually just fix it for you. (Granted, this often means processing takes longer and you pay more money, but still.)

So, um, how hard are taxes really? Why can’t the government do most of it for you?

Actually, it can. The tax preparation companies just don’t want taxes to be too easy, because then Americans wouldn’t use their services. According a piece by Liz Day at ProPublica:

Imagine filing your income taxes in five minutes—and for free. You’d open up a pre-filled return, see what the government thinks you owe, make any needed changes and be done. The government-prepared return would estimate your taxes using information your employer and bank already send it. Advocates say tens of millions of taxpayers could use such a system each year, saving them a collective $2 billion and 225 million hours in prep costs and time, according to one estimate.
The idea, known as “return-free filing,” would be a voluntary alternative to hiring a tax preparer or using commercial tax software. The concept has been around for decades and has been endorsed by both President Ronald Reagan and a campaigning President Obama.

And yet this has never happened. This year you probably shuffled over with a folder full of papers to H&R Block or (like 25 million other Americans) stayed up late last night processing your returns with the help of TurboTax.

About that TurboTax. It’s not really your ally here. It’s your enemy. Day:

[Return-free filing has] been opposed for years by the company behind the most popular consumer tax software — Intuit, maker of TurboTax.
Intuit has spent about $11.5 million on federal lobbying in the past five years — more than Apple or Amazon. Although the lobbying spans a range of issues, Intuit’s disclosures pointedly note that the company “opposes IRS government tax preparation.”
The disclosures show that Intuit as recently as 2011 lobbied on two bills, both of which died, that would have allowed many taxpayers to file pre-filled returns for free. The company also lobbied on bills in 2007 and 2011 that would have barred the Treasury Department, which includes the IRS, from initiating return-free filing.

Intuit spokeswoman Julie Miller explained to Day that, “Like many other companies, Intuit actively participates in the political process.” Return-free programs, Miller argued “curtail citizen participation in the tax process” and also potentially have “implications for accuracy and fairness in taxation.”

Yea, maybe. Perhaps more importantly, according to Intuit’s annual Securities and Exchange Commission report, a free government tax preparation device would be a serious risk to its business.

I used TurboTax to do my taxes on Saturday afternoon. It took me about an hour and a half. It was a lot cheaper than going to H&R Block or using a private accountant. It makes doing taxes a pretty easy process.

But thanks largely to the efforts of TurboTax, it’s not nearly as easy as it could be.

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer

Comments

  • Steve on April 15, 2013 7:48 PM:

    My taxes took me maybe 10 minutes and most of that was probably finding the stamps to stick on the envelopes.

    I downloaded the PDFs from the IRS and State of California sites, filled in the numbers, printed them, and was done.

    The State of California form is even "smart" enough to do most of the computing for you. You don't even need to look anything up in the tax tables (I did, just to double check the result).

    All you need to do is lead a financially uncomplicated life.

  • Rich on April 16, 2013 10:08 AM:

    Most people can do their taxes in 10 or 15 minutes, with deductions, may be about 45. I've only hired someone when I had something truly complicated. The idea that preparers will find magical savings is mostly myth.

  • Neil Bates on April 16, 2013 4:22 PM:

    Preparers being able to find savings is not really a myth. It depends on the taxpayer's savvy, of course. Many people don't know they are due given credits such as for education expenses and energy savings etc (even if you don't "itemize" in toto.)
    Disclaimer: I work for a Liberty Tax service.

  • skeptonomist on April 24, 2013 10:29 AM:

    Oh sure, I remember how completely simple taxes were before Turbo Tax. Politicians had no interest in complicated exemptions and alternate scenarios. The government knew exactly what each self-employed person made on every transaction. But seriously, the complications of taxes are the creation of Congress and special-interest groups such as Wall Street; Turbo Tax has had little to do with it.

    Yes, in the future taxes could be a lot simpler if the government had records of every transaction, and the technology for this exists already. But there are other barriers to this level of government intrusion besides Turbo Tax.