I’m a believer in do-it-yourself tax prep for situations that are fairly simple, as is mine (even with my wife’s small business to contend with). Following my own advice, I just did our taxes in about three hours. Consequently, I am now experiencing my annual post-tax-prep irritation at the complexity of our tax system and the amount of work required to comply. This year, for the first time, I’ll vent it on a blog, any blog. Oh, OK, this one will do.
Actually, with modern software (TurboTax, and the like) it is far easier than ever to prepare tax returns, but still not as easy as it should be. Because I use tax prep software the focus of my ire has shifted from the tax code to the software implementation (the existence of which facilitates tax code complexity, but that’s a different post). I’m rarely 100% satisfied with my software tax prep experience. There always seems to be little things that aren’t explained or don’t feel quite right.
This year, TurboTax nearly tripped me up by not offering to import my mutual fund data until after I had entered it by hand (which wasn’t hard). But when it finally got around to offering importation, which I accepted, I found my taxable events had been doubled, one set hand entered and another imported. Oops! Easy to fix, but sheesh! How many folks are going to catch that one?
I had a few other minor irritations in my encounter with TurboTax this year, but nothing easy to describe in words. So, let’s move on to my second source of annual tax frustration: the IRS withholding calculator and the use of allowances to index withholding.
Look, I have a very simple request to the IRS or Congress: give me the freedom to do withholding my way and in return you’ll get what I owe you with far less error. I know with better accuracy than anyone else in the world what my taxable income will be in the next tax year. I can look at my 1040 from the prior year, make a few adjustments for things I can predict, and voila, out pops a reasonable estimate of my taxable income. Next, I can look up the tax rates and, presto, I know fairly well what my tax will be next year. Call it X. Now, all I want to do is tell my employer how much to withhold from each of my 26 paychecks. This isn’t hard. It’s X/26.
But wait! I can’t just give that number to my employer. I have to convert it into some integer called “allowances.” The method of converting to allowances is complicated and, um, STUPID!!! To make it easier one can use the IRS withholding calculator. Except, that’s stupid too because it is not based on the entries in my prior year’s 1040. It seems as if it is, but it isn’t. For example, they ask you for your expected wages and your 401(k) contributions. That’s, must I say it again, STUPID. It takes far more work to figure that out than to just look up your taxable wages on your prior year’s 1040 (and then inflate that a little if you really want to).
Also, the withholding calculator has no way of handling self-employment income and the sundry deductions one gets for a small business. Guess where all that information is? ON MY LAST YEAR’S 1040!!! So, thank you very much IRS, but you’ve found a way to make a very simple thing–something I can do in my head–nearly impossible to do half as well and for no good reason.
I know I’m going to get a lot of advice on how to do this in a less frustrating way. Good, give it to me. I want it. And Uncle Sam should want me to have it because the biggest source of error in my tax withholding is due to the cockamamie ways the IRS offers to help me calculate it. And somebody please tell me why withholding allowances make sense. Can’t do it? How about just tell me the formula that converts allowances to dollars. Now that would be helpful!