The Tax Man Cometh!

[Puget]

Finally got mine done last night- I stayed up way later than I intended to do so, but I wanted them off my plate.

State return was easy enough once I got through all the hoops of setting up an account in their new online system.

Federal return was straight forward enough, but then the free fillable forms got auto-rejected twice-- once for a mysterious problem where it thought I had an un-allowed character in a text field (I didn't but deleting and retyping it somehow worked). Then again when it turned out that clicking "do the math" does not in fact, do the math when it came to the charitable donations fields. Fixing that got me more back on my refund so I'm glad the system eventually caught it, but clearly that's a form programming error.

The real question is, why can't the form do these checks automatically along the way, instead of waiting to be submitted and then coming back with one error at a time so you can't even fix multiple errors at once? Heck, any old web form can outright stop you from typing an un-allowed character in a field, and pop up an error if things don't add up. But of course the IRS is stuck some time in the 90's technology-wise.

[kaysixteen]

I could have sent my 2021 return last week electronically, but I did not want to mess myself, or the IRS, up, with my paper 2020 return still sitting in that amorphous pile.  Ah well...

[AJ_Katz]

a societal standpoint I think it's nuts how tax advantaged owning a home is vs. renting, but that doesn't mean I'm not going to take advantage of that mortgage interest deduction!).

I suppose that it depends on the state.  (what real estate costs and thus the size of the loan and the interest payment). 
GIven the more recent standard deduction of $24xxx, a lot fewer people can deduct the mortgage interest. 

(My house has long since been paid off, but there was extra pressure to get it done once I no longer had enough interest and property taxes to make itemizing possible).

Yep, looks like we'll do the standard deduction this year too.  I don't know why, but this is disappointing to me.

Also disappointing is that we moved last year with a huge bill that I thought would be tax deductible, only to find out the moving deduction was eliminated in 2018.  Such a bummer.

[Puget]

a societal standpoint I think it's nuts how tax advantaged owning a home is vs. renting, but that doesn't mean I'm not going to take advantage of that mortgage interest deduction!).

I suppose that it depends on the state.  (what real estate costs and thus the size of the loan and the interest payment). 
GIven the more recent standard deduction of $24xxx, a lot fewer people can deduct the mortgage interest. 

(My house has long since been paid off, but there was extra pressure to get it done once I no longer had enough interest and property taxes to make itemizing possible).

Yep, looks like we'll do the standard deduction this year too.  I don't know why, but this is disappointing to me.

Also disappointing is that we moved last year with a huge bill that I thought would be tax deductible, only to find out the moving deduction was eliminated in 2018.  Such a bummer.

The standard deduction is $25k if you are married filing jointly, but only half that you are single. So the mortgage interest deduction (and state and local tax deductions) can make a big difference for single homeowners in high CoL areas.

Again, I'd like to see renters get the same deduction, but I'm not going to pass up the 2k refund I'm getting.

[clean]

Again, I'd like to see renters get the same deduction,

Are you suggesting that rent be tax deductible?  Renters do get the same 25K + (or 12.5 + K ) deduction already.

Home ownership (The American Dream), has been supported by the tax system for a long long time. (I dont know when it started). There is an argument that property owners are better citizens and home ownership should be encouraged and rewarded.  Remember, in the founding days of the country only property owners could vote!  Im not sure how much that mindset has to do with the mortgage tax deduction (probably nothing). 

Let's ask 'if this, then what' about this issue... who wins and who loses?

1.  Increasing a tax deduction means less income  to the government and the current rules are that reductions in tax revenue must be offset by increasing taxes somewhere else. (Who would pay more if renters pay less?)

2.  Even under the current deduction system, many home owners are not able to deduct their mortgage interest or property taxes.  (I lost the deductivility years ago, and it was one of the reasons that prompted me to pay it off... worst of both worlds, paying interest and not being able to deduct it!)  AJ KATZ just illustrated the problem.
So who much rent would one have to pay to even qualify for a deduction?  (as they are not owners, there would still be no deduction for property taxes) and only the portion OVER 25900 (or 12550 for singles) would really benefit the tax payer).

3.  While many landlords may own only a few rental units (and may owe significantly on them), there is likely a perception that landlords are members of the 'evil rich' class, and allowing a deduction for rent would permit landlords to raise rent as it could be argued that rent is more affordable, thus further benefiting the rich. 

4.  Imagine the record keeping burden that would be added to property owners!  Who gets the tax form (1099-rent receipt?) if there are multiple tenants?  How would a landlord prorate that if there are 3 tenants sharing a house?  What if someone is subleasing?  The rental payment to the landlord would be the max deduction, but that would go to the primary tenant... the subleasing tenants would then get their own form and the primary tenant would have to reduce their deduction.... (AND at the limit, none of this matters as few tenants would really benefit from the deduction given the current standard deduction).  However, ALL landlords would most likely have to complete the form, deliver a copy to the tenants and file a copy with the IRS.   



Instead of increasing deductions, why not just argue that we should return to the system of the beginning of the last century when there was NO income tax at all!  We could tax imports! 

Who loses now?
Well, if Oil is imported (and less is now than 30 years ago), then gas prices would be higher, and those that have a higher portion of gas as a percentage of their budget (poor maybe, who pay nearly no income tax now,  would pay a higher tax burden.  Walmart is a big seller of cheap, imported goods, so walmart shoppers will pay higher prices, and I am not sure that Walmart is not known for its targeting high income clientele. 

There is always 'another shoe to drop' when changing policies. 

[dismalist]

Instead of increasing deductions, why not just argue that we should return to the system of the beginning of the last century when there was NO income tax at all!  We could tax imports!

Ah, but there were two big sources of revenue -- tariffs and taxes on alcohol. Passage of the income tax was crucial in breaking the resistance to Prohibition. Without an income tax, we'd have to tax alcohol heavily again. That would be terrible for me. :-)

Actually, what's wanted is a uniform consumption tax, so that savings are not taxed twice. A large standard deduction can make it progressive. One can make it more progressive than that if that's what's wanted.

There should be no special deductions. They just lead to overuse of the stuff that's privileged, here owner occupied dwellings. But the mortgage interest deduction raises house prices. If the deduction were abolished, house prices would fall, and homeowners would feel terrible, though they shouldn't. 

[clean]

ead to overuse of the stuff that's privileged, here owner occupied dwellings. But the mortgage interest deduction raises house prices. If the deduction were abolished, house prices would fall, and homeowners would feel terrible, though they shouldn't. 

IF housing prices fall, and home owners feel terrible, they will consume less since Consumption is a function of perceived wealth! 
We can then run through the economic argument that REDUCED consumption means a rise in inventories, and that causes shops to reduce orders, and factories to reduce employment, which reduces INCOME so more have a reduction in wealth!
This is part of that 'other shoe' I mentioned above.  The only trick is to see what the strength of these pressures is.  What inventories r9se and how many employees (and at what wages) are laid off (then we can add the political issues as well and see the power of the congressional representatives whose districts are most paying for this plan)

Given the Input Output Multiplier that housing construction has, anything that lowers the value of a house (and the profitability of building them) will have a huge negative impact on the economy.  SO I dont see a huge actual change in the mortgage interest deduction.
We already have increased the standard deduction and then limited the SALT (state and local tax) deduction and I dont see much appetite to change the tax system further.

Bigger problems on the horizon are the stability of the Social Security System and the Medicare system.  Yet, in these political times, nothing is going to happen to those programs anytime soon. 


But back to the theme of the topic....
Yesterday I bought TurboTAx and got the K1 from my inlaws. 
For the first time in my life, given my schedule this week and taxes due Friday, I may have to file for an extension! 

[dismalist]

Cutting the mortgage interest deduction would reduce the demand for owner occupied housing. We'd get an increase in demand for rental housing. Adjustment problems won't take long to solve.

But the stability of Social Security and Medicare are real questions.

Be that as it may, I came across this so-called Debtfixer by the Committee for a Responsible budget. https://www.crfb.org/debtfixer

One can play around with this to see the effects of one's favorite policies for the debt. The Committee has goals for cutting the deficit, but the user doesn't have to abide by them. So, it's a useful indicator for anyone's favorite policies. Have fun!

[Anselm]

Imagine the record keeping burden that would be added to property owners!  Who gets the tax form (1099-rent receipt?) if there are multiple tenants?  How would a landlord prorate that if there are 3 tenants sharing a house?  What if someone is subleasing?  The rental payment to the landlord would be the max deduction, but that would go to the primary tenant... the subleasing tenants would then get their own form and the primary tenant would have to reduce their deduction.... (AND at the limit, none of this matters as few tenants would really benefit from the deduction given the current standard deduction).  However, ALL landlords would most likely have to complete the form, deliver a copy to the tenants and file a copy with the IRS.   

This is the problem with the entire income tax system, endless record keeping and confusion.   I would venture a guess that no other nation has such a complicated system as we have in the USA.  The whole world got by without it until the 20th century and until recently some advanced nations survived without it.   Technically the FICA tax is an income tax but is extremely simple for an employee who does not have to calculate profit like a business owner.  I find that much more tolerable.

I never believed that someone should get a break on federal taxes for having a huge home and high property taxes.  If you pay high property taxes then you are probably getting something for it.  States like Illinois and New Jersey pay their employees very well and can recruit the best from around the country. 

[dismalist]

This is the problem with the entire income tax system, endless record keeping and confusion.   

That's by design. Through complexity bennies, or apparent bennies, can be given to one's constituency without too many people noticing.

One could easily have a tax system where companies and individuals file on a postcard.

[hmaria1609]

Some tax humor courtesy of "Frank & Ernest" comic:
https://www.gocomics.com/frank-and-ernest/2022/04/09
Appeared: 4/9/22

[clean]

I would venture a guess that no other nation has such a complicated system as we have in the USA. 

Not according to my PhD school office mate!  He is in Canada but has to do both the US and Canadian tax forms!   While the US has a large standard deductions (meaning that MANY things that we COULD itemize are no longer necessary, but in Canada, from what I gather, you have to itemize just about everything! 

[dismalist]

I would venture a guess that no other nation has such a complicated system as we have in the USA. 

Not according to my PhD school office mate!  He is in Canada but has to do both the US and Canadian tax forms!   While the US has a large standard deductions (meaning that MANY things that we COULD itemize are no longer necessary, but in Canada, from what I gather, you have to itemize just about everything! 

Looks like Canada may be as special a case as the US.

"At last count, 36 countries, including Germany, Japan, and the United Kingdom, permit return-free filing for some taxpayers." from

https://www.taxpolicycenter.org/briefing-book/what-other-countries-use-return-free-filing

[clean]

There was a calculation error so we will have to deal with a change in our IRA contributions.  WE must do that Before we file the Taxes, so that means that Monday I will be calling Voya to change last year's contribution.  THEN I can file taxes.  In between, I  will either file the taxes OR file for an extension. 

[Juvenal]

I have become aware (sorting paper, sorting paper) that I might be getting some Medicare reimbursement I am not entitled to.  Well, I am not about to start the paper-hell that might be needed to "rectify" this.  I'll wait until I hear from "those people."  Maybe I never will; I'll keep cashing the checks until the marshals are at my door.