It is a tax season in the US. This is perhaps one of the most stressful times for many. It doesn't have to be, it never had to be this way. Either due to lack of interest in making the process simpler or due to incompetence tax filing process has been one of the confusing ones, even though many go through the same process every year. But there is always hope things can get better. Could it be this year that finally IRS decides to take positive actions in making filling tax returns simpler and affordable? IRS believes so. They have announced in the beginning of the year the launch of a new software called Direct File that will allow many Americans file taxes for free.
Finally some progress! It only took them a couple of decades to come up with something that would allows people file their taxes online for free. I apologize, that is not completely accurate. E-filing system has been around for many years now, and it shouldn't be confused with the new Direct File. E-filing system for taxes was a positive move when it was started. However, it didn't allow tax filers use it directly, instead it was more of an agreement with private companies like TurboTax, HRBlock and IRS to make tax filing more efficient. While not all taxes could be filed electronically, it did allow many to do so using third party software products.
It is not new for government agencies to partner with private companies to come up with solutions. Nothing is really wrong with such cooperation. Often times there are problems that government agencies are not able to solve themselves or don't have required resources or know-how. Private companies step in and get things done for a handsome fee. This is good because it helps the economy as well and rewards creative solutions in private sector. The problem is when such partnerships are not done in good faith, involve corruption or ill-intent, and lead to monopolies. It is even worse when the underlying issue is never resolved. Software products like TurboTax and HRBlock and other lesser known ones were among the ones who offered tools that made filing taxes a little bit easier. However the tactics they utilized in this business endeavor weren't in the best interests of the tax payers or customers. They still aren't. When you use one of these products today, they continue to lure you into paying for higher tier product when lower tier would just do the work. It is by design. To make as much money as possible. And it is not honest. Taxes are already to too complicated. Their tactics add more confusion, although they do a decent job with helping filing the taxes.
As part of the agreement, these companies were supposed to provide free filing options as well. It is very rare they let customers file their tax returns for free. Because of the tactics used to keep selling higher tier throughout the process, most of the time they end up having customers pay more than they initially thought they would. They do have free versions of the software available too, that would do the job for most just fine. However, they don't advertise those and they are well hidden away from search engines as well. So most of the time customers end up using the paid versions. They don't hesitate in advertising their services and spend millions to keep their market share. Giving away product for free would just not hep their profits, and agreements made were just words that had no meaning. Whichever way we look at it the partnership have failed and never produced desired outcome. Maybe that is why IRS decided to build their own software and launch Direct File.
Providing tax payers with free software to file taxes is the least IRS could have done. Launching Direct File is definitely a step in a right direction. In the age of advanced AI technologies when AI tools are capable to build software, create art, and write research articles, a tool for filing Taxes seems long overdue. Software is not complicated. There are abundance of software engineers not only in the country, but employed by the agency itself. Software is one of the solutions that can create tools that introduce more clarity when a lot of confusion is present. Confusion is clearly is the case with taxes. While software can't do everything, it can make things simpler, it can make tax-filing experience more user friendly, and remind of certain important things to its users when needed and perhaps let them optimize their tax returns.
Direct File is just a first step and there is hope it will lead to something much better in the future. It has become available in February 22 to small number of people. It is not available in all states. IRS partnered with dozen states for the initial launch, mainly those states with no state income taxes. They do intend to opened it up to more and more tax filers gradually. Think of it as Beta test version for now. Maybe because of this many won't use it yet, and continue using paid services. Why break something that have worked for years? I doubt they will have large scale adoption this year. But as we go through this tax season there will be enough data available to see what directions IRS will go with this new software. I can see huge potential here. Many can save money on fees, and IRS can get more efficient with their systems and cut costs as well.
Besides Direct File only being available in certain states, it only offers filing simple taxes like those who only use W-2s. I don't think it can help individual contractors, freelancers, entrepreneurs, and those with more complicated taxes. But hope is, if the first step is successful, they may consider making it eventually be capable of all kinds of tax situations. I wish IRS good luck and success in this effort.
Great software will solve many tax filing problems. However, it won't solve them all. Because the underlying problems with taxes and the confusion within tax system have to do with the tax laws. There will need to be major initiative taken in Congress and/or state legislature to clear up a lot of confusion, loopholes, and unreasonable taxation. This part of the problem, I doubt will see any improvements in the near future.