The average American pays $294 to file their taxes each year. These fees equate to approximately $11.3 billion per year in revenue for tax preparation companies. In the crypto world, tax filing costs can be many times higher than traditional tax preparation, as it usually requires more time, software, and specialized professionals to help you out.
However, the Internal Revenue Service (IRS) and state tax authorities already have the majority of our wage information reported to them each pay period by employers. Why then do W2 workers have to return forms with information the tax authorities already have?
For years, tax-help giant Intuit has quietly lobbied against the Return Free Tax System, an IRS initiative dating back to the 1990s to create its own self-hosted, free system for taxpayers. Instead of this government service, Intuit and other tax preparation software vendors have agreed to offer a free version of their software to low-income Americans.
However, thanks to deceptive billing (like the federal filing free offer and charging for every state tax) as well as tricky user design, these “free programs” easily add up to over $200 per filing.
Read more: Use Your Crypto Losses to Turn the Tide Against the IRS / Opinion
It seems illogical to many that we have to pay intermediaries to tell us how much we owe the government each year. And that’s part of the reason why some of the biggest Web3 companies looking to disintermediate many applications on the Internet are tax software.
Today, there is massive competition among decentralized tax assistance providers to expand both channel support and automation of reconciliation and profit/loss calculations. Indeed, tax reporting on crypto transactions is often unclear and overly complex.
Many outsource their tax preparation entirely, hoping that throwing money at the problem will save them.
The recently passed Inflation Reduction Act allocates $15 million to the IRS to further explore how to allow Americans to pay their taxes without using intermediaries like Turbotax. The objective is to ensure that this new program, which remains to be determined, replaces the flop of the tax system without return.
On the crypto side, the logic needed to transform data into a string in order to be able to calculate capital gains/losses is becoming more and more commoditized. For the average crypto user who doesn’t have a portfolio of more speculative investment activities, the data transformations and simple formulas are already open source.
As we move closer to free tax filing software and more readily available calculators, we can say goodbye to our TurboxTax accounts.