Why American Taxpayers Get the World’s Worst Deal
It’s a brave person who does their own US income taxes… especially if you’re an expat.
I saw a recent New York Times video that explained why—despite decades of promises from White House administrations—the US income tax system is still so hopelessly complex. Most people have to pay someone to help them file.
The short answer, to no one’s surprise, is corporate lobbying.
Intuit, the company that owns TurboTax, has lobbied Congress endlessly to ensure that Americans need to keep using TurboTax software to keep filing their taxes… Uncle Sam thus has never adopted the simple filing systems used by most other developed countries.
And not just developed countries.
In South Africa where I live, the Revenue Service issues pre-filled returns for most taxpayers… You just log on to the website, check the figures to make sure you agree with them, and then submit “file.”
I made a video of my own to show you how simple things are here in South Africa compared to the US…
Check it out here—I even share my screen so you can see the differences for yourself!
Of course, plenty of South Africans have complex financial affairs, and need to do extra work before they submit. And self-employed people like me need to submit provisional taxes quarterly.
But the bottom line is that the system I use here is way easier than the US.
Like most Americans, I’ve been working on my form 1040 for a couple of weeks now.
It’s one of the most maddening experiences anyone can endure.
Being an expat adds a whole other layer of complexity and form filling… but also an opportunity for some tax savings. (I have a seminar coming up… How to Pay Zero Taxes… where I explain exactly how.)
Like I say—US taxes are maddening…
Consider the section on income. Line 1A asks you to enter the “total amount from forms W2, box 1.” This is what’s otherwise known as wages. But there’s no logical reason why you should have to enter that information. Your employer has already submitted it to the IRS, and it knows the number. It could just as easily prefill it for you, the way the Revenue Service here in South Africa does.
The same applies to other types of income, including dividends, IRA distributions, pensions and annuities, and Social Security benefits. All of those amounts, including deducted taxes, are reported to the IRS by companies and custodians who make these disbursements. The IRS already knows all of this.
Another frustration comes from the number of extra forms you’ve got to complete.
For example, if you have a rental property, you’ve got to file Schedule 1.
For certain types of business income, it’s Form 8995.
If you’re self-employed, you must complete Schedule E.
Claiming a child tax credit requires schedule 8812.
And on and on…
The same applies to tax payments. Even though the IRS knows how much your employer has withheld—and how much you’ve earned as detailed on your 1099 if you’re self-employed—you must still enter that information all over again. To get credits and deductions to which you’re due, you’ve got to fill out Schedules 2 and 3.
Now, I have a postgraduate degree in economics, and I’ve been working with numbers and spreadsheets for most of my adult life. Completing all this stuff takes hours, and one mistake can cause a cascade of errors across multiple forms.
It’s not for the faint of heart.
As an expat, I might have to complete Form 8938 under the Foreign Account Tax Compliance Act (FATCA).
With as little as $10,000 in foreign currency in a foreign account, I must file the Report of Foreign Bank and Financial Accounts (FBAR), even though it duplicates Form 8938.
If I don’t, I’m looking at tens of thousands of dollars in penalties—amounts even the IRS ombudsman calls “abusive.”
As a US taxpayer who lives and works in a foreign country, I’m entitled to exclude up to $240,000 of our household income from US tax. I’m also allowed to deduct certain housing expenses. But to do that requires another array of forms.
Helpfully, the IRS Issues Publication 54, a 51-page instruction manual for people like me. That’s on top of the 114-page instructions for the 1040 itself!
Completing my own taxes is a big task…
But this year I did it myself anyway for two reasons.
First, I wanted to be able to speak from first-hand experience when I talk about the tax issues confronting expats in my upcoming seminar on 3 April—it’s called How to Pay Zero Taxes.
And my second reason? Simple: It’s an act of resistance against politicians and their corporate overlords who force this all upon innocent Americans!
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