Filing Your Taxes

Here is my dream: You, the reader, are saying to yourself, “I can’t wait to read this Midweek Mission Message! It includes two of my favorite words, filing and taxes!” I doubt my dream is reality, but please slog through with me. 

When you file your taxes, you get something called a standard deduction. Basically, the government says “Okay, taxpayer, we are going to assume that you have made gifts to charity, you have some non-reimbursed medical expenses, possibly mortgage interest and other items that are tax-deductible. For most Americans, it is not worth your time to find all your receipts and not worth our time to see if you are telling the truth, so we are granting everyone a certain amount of money to deduct off the top. This is the standard deduction. If you do not exceed this amount, you can file a short form. If all you could deduct adds up to more than that, you will have to itemize and file a long form.”

Last year the standard deduction was $12,950 for a single person (or married and filing separately) and $25,900 if married and filing jointly. 85% of Americans do not exceed the standard deduction, probably because they earn less than $80,000 a year. Only 15% of Americans need to itemize their deductions.  

If you don’t need to itemize you should be able to go online to the IRS and fill out a form that is easy, fast and free. However, because of for-profit companies like Turbo Tax and H&R Block, most people are not able to file their taxes easily and certainly not for free. These companies resist any effort to simplify tax filing because it eats into their profits. 

However, that may be changing. Recently the IRS announced that it would develop an experimental online tool to allow Americans to file taxes directly with the agency for free. This is a bigger step than it looks because four years ago, with intense lobbying from Turbo Tax and others, Congress almost passed a bill preventing the IRS from ever offering free tax filing! (See Congress Is About to Ban the Government From Offering Free Online Tax Filing. Thank TurboTax at ProPublica.)

This may seem like a small item in a world of giant problems, but it is also easily fixable and would save non-itemizers anywhere from $100-$1,000 per year that they now pay their tax preparation service. 

For more details (and how can you resist wanting to know more?), check out this article from ProPublica.

For other nerds like me, who love the arcane but critically important world of tax policy, check out the information that comes out of the Institute on Taxation and Economic Policy.