Tax Cheaters Cost You $300 Billion a Year!

If you are like me, you probably hate paying taxes. However, I like most people do what is right and pay the required amount. Yet, many people do not pay their taxes fully, instead they either understate their incomes or overstate their deductions. Tax gaps are composed of three things; under reporting income, underpayment of taxes, or failing to file tax returns. It was reported that U.S. tax payers owe the government over $300 billion a year. A federal research found that the U.S. tax gap ranged from $312 billion to $353 billion in tax year 2001. Furthermore, the research was done on individual returns which made up the largest part of the gap about two-thirds of the total. The IRS managed to recover only $55 billion of the gap leaving a gap of $257 billion to $298 billion. According to the IRS this yields a noncompliance rate of 15% to 16.6%. The largest of the three components was under reporting income which accounted for 80% of the gap. Underpayment and not filing tax returns accounted for 10% of the tax gap. The study also found that compliance was more likely when another party was involved. For example, if an employer had to file tax reports wages and salaries were misreported by less than 1.5%. I used to think “so what? They don’t pay their taxes”. However, the reality is that “People who aren’t paying their taxes shift the burden to the rest of us”. This article can be found at http://moneycentral.msn.com/content/invest/extra/P113435.asp