Monday, April 15, 2013

Tax day

I use Turbo Tax, despite Intuit's reprehensible lobbying against tax simplification via the option to use "pre-populated tax returns" generated by the federal and state authorities.  I gave up on preparing my tax return by hand more than 10 years ago.

The last time I prepared my tax returns the old-fashioned way, there was a capital gains  form with 15 or 20 lines, most of them requiring a separate computation, and many of them saying something like "Take 13.7 percent of line 14 and subtract it from 81.6 percent of line 12."  (I exaggerate only slightly.)  It verged on impossible to do all of the computations without making an error somewhere, e.g., pressing the wrong button on my calculator or adding something one was supposed to subtract.  And my capital gains were trivial to begin with (both in amount at stake and in the number of transactions).  They probably all came from penny ante mutual fund realizations or some such thing.

The computations were also amazingly unintuitive.  One couldn't grasp what was going on or why.  However, probably unlike most filers, I realized that this ridiculousness was 100% the fault of Congress, not the IRS, which had been forced to implement an absurdly intricate political compromise involving multiple capital gains rates for different categories and times of year.  But this didn't make it any less annoying.

The crowning indignity that year was that I initially forgot to include one trivial item of income that was, say, $100.  Once I spotted it, I had to recompute anything in the return that was based on a percentage of adjusted gross income.  So I decided never to prepare my tax returns by hand again, and I further figured that, given the lack of anything financially or legally complicated, using Turbo Tax would be both cheaper and easier than handing everything to an accountant.

What still remains incredibly annoying, if you live in New York City, is that NYC has these two supplemental income taxes that you must file physically, on top of the NYC income tax itself.  Turbo Tax can generate the paperwork, but they aren't e-filable.

More specifically, NYC has an "unincorporated business tax," which someone once called a tax on the privilege of doing business in NYC not as a corporation.  It hits earnings that aren't employee wages - e.g., if I get a couple of hundred dollars for writing a tenure letter.  NYC also has a "metropolitan commuter transportation mobility tax," which is similar in scope (and has nothing discernible to do with either commuting or mobility).

Worse still, both of these supplemental income taxes require filing quarterly estimated taxes.  So, even if you e-file, you find yourself needing to prepare multiple mailings on April 15 or thereabouts, each arguably meriting "return receipt requested" so you can confirm that they went through.

Next question, is one of the reasons NYC does things this way so that it can add penalties to the taxes due if you aren't aware of the additional tax instruments?  I wouldn't be surprised if lots of newcomers get hit with penalties the first time around, even if they deploy Turbo Tax or an accountant when it is time to file, given the estimated tax aspect.

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