[anamax]

To be fair, the FedGov doesn't know all of the transactions that you do that affect your income. At best, it knows what a legal employer paid you.

FedGov doesn't know the basis of your stock (or crypto) transactions so even if it knows the proceeds, it doesn't know how much tax you owe.

[ilammy]

> FedGov doesn't know the basis of your stock (or crypto) transactions

Aren't brokerages required to file forms for every customer they serve? Let the regulated businesses deal with bureaucracy and accounting, they are expected to hire people for that job anyway.

[nybble41]

> Aren't brokerages required to file forms for every customer they serve?

They are, but there are corner cases where they might not have all the necessary information. For example, if you trade the same stocks or mutual funds through more than one broker then neither one will have enough information to determine the cost basis for each sale. It's also possible to move shares directly from one broker to another.

For crypto, in the US, none of the exchanges are currently required to track any of this to begin with (they aren't considered brokers) so it's up to the customer to keep track of the cost basis. Even if they did act as brokers the other issues still apply, plus the cost basis of your positions will be affected if you trade on your own without involving an exchange. For example, spending crypto on goods or services from an unhosted wallet can affect the cost basis of subsequent sell orders. The tax filings are probably simpler under the current system, since if exchanges were filing 1099-Bs you would need to submit adjustments to their cost basis reporting along with everything else.

[anamax]

How does Binance know the basis of bitcoin that I transfer in?

Heck - how does Schwab know the basis of Disney stock that I bring in?

How does either one know when I acquired said assets?

[ilammy]

If you have stock to bring in, you bought it somewhere, right? That "somewhere" should have filed forms reporting on your purchase, kept records and stuff.

With bitcoin, a part of !!fun!! from holding non-security assets is all the accounting you have to do. Enjoy it, that's a part of a bargain. That said, other countries like Japan mandate regulated exchanged to keep track of their customers assets, assist with cost-basis computations, etc.

My point being, regulated institutions can make filing taxes easy for most of the people, with unsophisticated circumstances. Usually being an employee of a single business is considered "unsophisticated" enough to not deal with any forms, letting your employer do these things for you. There is no reason why other common life situations cannot be made as easy, like having deductions for mortgage, purchasing securities via regulated brokerages, etc.

If your situation is "sophisticated", then surely you gotta enjoy accounting and reporting then. But that should be necessary only for a fringe percentage of people.

[maxerickson]

It'd be fine to just ask for information in the cases where they don't have it, a system doesn't have to be perfect to be better.

[anamax]

Note that we're assuming the existence of a brokerage.

When I sell you BTC, how do you report my gain?

When I buy pizza with BTC, how does the pizza place report my gain?

[maxerickson]

No, I'm not assuming that a brokerage will have information about every transaction, I'm assuming that brokerages will have information about many transactions. It would be worthwhile to simplify tax filing in those cases even if there are other cases that do not get simplified.

[sidewndr46]

The federal government knows exactly how much I made. There is no financial information beyond the view of the federal government. The only way I could hide income would be to get paid in cash (or cash equivalent, like gold) then hide that money in a safety deposit box. That doesn't exactly scale very long. It's notoriously difficult to buy a car (or bread) with gold bricks. Also, if someone does do this they aren't going to just tell the government "yeah I have $700,000 in gold sitting in my safety deposit box".

Even if the government had absolutely no records of my income (which is false), there should be an option for me to just submit all my income records to them tabulated. I can attach a bank account number and routing number and have them deduct whatever money I owe in taxes from the account. End of story. Unless the IRS is claiming you owe a massive amount of money relative to your income, it is never worth contesting it. You're going to spend more money & time than you will ever recover.

[anamax]

How does FedGov know why I gave you a $600 check?