Tax Returns for an Old Lady Living Modestly (my Mom) – it is Ludicrous

I’m angry – I’m going to rant – oh – I seem to do that now and then, don’t I?

So, my mother’s taxes – I do her taxes every year – I get a timely automatic extension every year, and sometime in the summer, I spend part of a week of vacation to do her taxes. This gives me an annual glimpse into her finances, and reassures me that her financial future is sound enough. And, it saves her a few hundred dollars!

A profile of my mother:

Age – 80+ years;
Net Worth – about $350K
Annual Income – less than $30K
Health is frail with parkinson’s and just now a broken hip.

Tax tools:

TurboTax and Excel

Taxes make me angry!  I don’t object to paying taxes. Heck, roadways and airways and radioways and police and NASA and defense and justice and everything else in government costs money! It does… And, it has value that I appreciate. Much of government serves me in some way. It has to be paid for somehow, and I am OK with paying my fair share (and my mother, too). But the time…  It takes a LOT of time, and as a matter of principle, I object to spending significant time and/or money (or my mother’s) to satisfy the burden of law. Taxes should be simple enough that you can do them in an hour with a pen!

My Mother’s backup files to me – more than 2 inches of paper:

I am missing 4 bank statements (out of 24), missing 2 charge card statements (out of 12), missing most of the medical bills; missing 2 1099-INT’s, missing an amended corrected 1099-B; missing a K1, and missing a few other documents – it takes me weeks to gather what she misses in the mail, but I manage to get most of what I need by July with a Power of Attorney and some charm over the phone…

My Mother’s completed returns:

This year, Federal is 9 multipage forms (20 pages); State is the Federal return plus 4 multipage state forms (30 pages).

I do my taxes and my mother’s manually first, and compare the manual return with TurboTax’s output. TurboTax isn’t quite accurate, but it is close, it minimizes typos, and it compiles a nice back-up document set. It easily imports 1099’s from brokerages, and it is nicely organized to identify tax considerations for me. I report several errors to Intuit every year, and they fix them by the next year. TurboTax currently makes an error on the State return associated with partnerships that repost a capital gain on the sale of assets…

Says Intuit, “yup – we know about that one. It is too complicated to make the interview address all circumstances correctly. Those publicly traded partnerships are a nightmare! Just send in what we generate… It will be OK… Or you can override the interview entry if you know how to…”

Says the State Tax Commission, “We know about that (the TurboTax error). It is complicated. It is OK to send us the errored return – H&R Block has the same error. Don’t correct the error, or you will screw us all up…”

Says my mother’s financial advisor, “Sorry it is so complicated – I can’t understand all the tax treatment, and I spend a few hundred dollars of CPA time to get the IRS happy with the forms and answers to any of their questions about my own return.. But, we got good distributions with favorable loss tax treatment. It was worth the trouble.

These Publicly Traded Partnerships or PTP’s are horrible for taxes. They all have multiple “activities” that the K1 treats as a portfolio, but the lawful tax payer must treat each activity as if it were a separate stand-alone K1 so that passive losses of one activity do not offset my passive gains of another. TurboTax says, “just buy our audit protection service, and we’ll explain it away to the satisfaction of the State Tax Commission – don’t worry – just enter the K1 as you see it, and the nuances will probably not matter. – probably not…”.

So, like last year and the year before (and the year before that), I am thinking that this is just plain nuts – NUTS.  Taxes are too complicated for an ordinary person to do them, too complicated for software to address the nuances, and the recipients accept errors in the returns because they realize that at least, they received a return that is mostly correct with the tool at hand (and they might not get as many returns otherwise) – they are further ahead. And my mother would face this nonsense and simply not know how to even get started…  Well, this is just nuts, if you ask me – NUTS.

A few “bones to pick” – these are essential changes to the current tax code:

– Insurance companies don’t send a 1099 to document deductible medical insurance premium payments – they should be required to…
– Passive losses in an activity in a partnership portfolio of activities should be able to offset any activity’s gains. A loss is a loss… (and a gain is a gain) – just add it all up in the partnership portfolio of activity. You should be able to just add it all up!
– A tax form should be able to get all the information required from one 1099 form per investment company. The classic frustration is 1040 Schedule D that requires a 1099B, a K1 and a supplemental report from the enterprise to complete the form. And the supplemental report is not required by law to provide all the necessary information to complete the Schedule  D (so you have to phone) – says the clearing house, “Yes, we know what you are asking for – it didn’t find its way onto the K1 or the 1099 in time, so we are glad to tell what you need to know by phone…”
– A redesign of capital gain/loss reporting is essential.
– And finally, if your income is less than a threshold, or your net worth is less than a threshold, or your gains/losses are less than a threshold, then don’t require a form to report those elements in your tax return. If you are small enough, simplify the process!

So, this is just plain NUTS, I’m telling you… And I recall Senator Gramm one day long ago discussing taxes with me. Said Phil, “Brian, just hire a CPA and pay them a few thousand a year, and everything will be fine. That’s what I do – I have never done my own taxes…” Well, THAT’S just plain NUTS! And that in part is why we have this tax mess in the first place.

I think it is criminal – an 80 year old woman who technically  lives near the “poverty line” (though I know that she eats well, has adequate medical care and is happy as can be), who doesn’t understand the documents her taxes demand, who doesn’t even recognize those documents in her mail, who can’t understand the tax form instructions (not one word) has to mail in 50 pages of forms to file her taxes properly, but not necessarily correctly (and that’s apparently OK). That’s just plain NUTS!

Rant Over – Something to add to my meeting with my Congressman’s staff on the 30th.

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