How come the IRS doesn’t just mail you a bill if they know exactly how much you owe in taxes?
In: Economics
Because they don’t.
They know how much income you made that was reported to them and they know what your standard deduction is.
There’s a ton of other deductions out there, and they have no idea if you qualify for any of them. A lot of them are for rich people, but there’s also a lot for normal people too. (Most poor people get back everything they paid, and some even get back more than they paid because of things like child tax credits.)
They don’t know how much you paid in qualifying medical bills. They don’t know how much you paid in student loan interest (even if it was to the Dept. of Ed., they don’t talk to each other). They don’t know how much you spent on qualifying retirement contributions. They don’t know how much you spent on farm expenses. There’s so many deductions I’d be here all day trying to list them all.
That’s why you have to file your taxes. You know (or should know, a lot of people don’t) all the deductions you qualify for. So you include them in your tax filing. Personally I qualify for a massive deduction for student loan interest paid. My student loan interest paid every year actually exceeds the cap for the deduction. But the IRS has no way to know that because the financial institution doesn’t tell them.
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