Why doesn't TurboTax want your taxes to be simple?

Colin Lalley 1600


Colin Lalley

Colin Lalley

Insurance Expert

Colin Lalley is the Associate Director of SEO Content at Policygenius in New York City. His writing on insurance and personal finance has appeared on Betterment, Inc, Credit Sesame, and the Council for Disability Awareness.

Published March 1, 2016|5 min read

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The U.S. tax code is infamously long and complicated. Not as long and complicated as some people make it out to be, but it’s still a hefty read.

There are a lot of ways to simplify taxes. We could remove a lot of the deductions. We could simplify definitions (NPR calls out the definition of "dependent" as being particularly unnecessarily convoluted).

We could also introduce return-free filing – an idea that’s been floated since the Reagan administration – if only companies that profited from complex taxes didn’t keep getting in the way.

How to file taxes in 5 minutes

You know how you do taxes now: you get a few forms in the mail from your employer and banks, take them to a tax preparer or plug them into some tax prep software, and pay whatever you’re told to.

It seems a lot like you’re just moving information from one place to another, and for the most part you are. The idea behind return-free filing is to cut out the unnecessary steps.

With return-free filing, you’d get a form from the IRS that’s already filled out with the information from your employer and banks. You’d double check that the information was correct and either mail in the form or make changes to it in the event of errors.

Essentially, instead of you filling out a tax return, the IRS would do it and you’d sign off on it. Simple as that.

Other civilized countries already do this, and proponents estimate it could save taxpayers a total of $2 billion and 225 million hours of tax prep time every year.

But there’s no way this could work in the United States, right? Things are too complicated, we’re too entrenched in our current methods, and so on. We’d need some sort of test. If only, say, California implemented something called ReadyReturn that used return-free filing for state taxes so we can see how it might be handled on a larger scale.

Luckily, California implemented something called ReadyReturn that used return-free filing for state taxes so we can see how it might be handled on a larger scale.

ReadyReturn provided pre-filled forms to taxpayers; it was limited in who was eligible and was later folded into California’s CalFile tax filing system. But while it was in place, ReadyReturn was a success (that’s why it was integrated into the more widespread CalFile system). Here’s the user feedback from 2011:

  • 99% stated they were satisfied with ReadyReturn.

  • 97% stated this is the type of service government should provide.

  • 96% stated it was more convenient than how they filed in the past.

  • 95% stated it saved them time.

  • 98% stated they would use it again.

It also saved the state an estimated $125,000.But don’t worry, because Intuit, the creators of TurboTax, want to make sure a similar system isn’t in place for your federal tax return.

The case against return-free filing

Most sane people would be completely on board with having to do less work for their taxes. But thanks to money and politics, there’s enough opposition to have kept it from happening so far.

Leading the charge has been Intuit, who "see a conflict of interest when the government prepares, collects and enforces tax policy."Their argument comes down to a few things, mostly not trusting the government. They think that since the IRS is going to be preparing your taxes, they might overtax people in order to collect more revenue; in this scenario, taxpayers are either a) too afraid of the IRS to dispute what they’re reporting, or b) too lazy to check the numbers and will just rubberstamp whatever is sent to them.

If you take a look at Intuit’s lobbying disclosure report, you’ll see their specific lobbying issues in plain English. Among them? "Oppose IRS government tax preparation."

It’s not hard to see why Intuit opposes a return-free filing. They want – or need, rather – people to pay for their software to have their taxes calculated. In 2015, they sold more than 15 million copies combined of the desktop and online versions of TurboTax. If most people aren’t preparing their own taxes, that’s a lot fewer copies of TurboTax that are finding their way into the hands of consumers.

What was that they said earlier about a conflict of interest?

To be fair to Intuit, they aren’t alone in opposing return-free filing. H&R; Block’s lobbying efforts include challenging "tax simplification, return free filing, refund anticipation loans." And that’s in addition to supporting a bill that quadrupled the length form for the Earned Income Tax Credit, a tax credit designed for low-income people to encourage them to work.

Other groups like Jackson Hewitt and the American Coalition for Taxpayer Rights have also spent varying amounts of money opposing different tax reforms.

Will we ever see return-free filing?

There are definitely problems with return-free filing – if you try to cram it into the tax system we have now.

First, you’d need to simplify the tax code. The more exceptions you have, the more difficult it is to have a return-free form that can encompass enough people to make it feasible and worthwhile.

But two-thirds of taxpayers don’t itemize their deductions and just take the standard deduction, so many aren’t doing a customization of their taxes. A standard return-free filing would meet their needs. All we have to do is clean up other parts (like deductions and definitions) to streamline the process.

We’d also need to reform the IRS. Right now it’s an organization that’s nearly stretched beyond its means; adding the burden of filling out return-free forms likely isn’t feasible. But having the IRS fill out forms would ostensibly lower the number of errors that need to be investigated and could save them $36 million dollars per year. We might be able to reform the tax filing system and the IRS at the same time.

Most of the tax talk, especially during this presidential season, is around changing tax brackets. But that doesn’t mean return-free filing will never be the main topic of conversation, and maybe one day we’ll all be doing our taxes in minutes. Until then, you can always use TurboTax to file.Or find an alternative.

Image: Mike Mozart