The Internal Revenue Service is reporting that the difference between what U.S. taxpayers owe and actually pay on time totals more than $300 billion a year. Studying over 46,000 tax returns for individuals revealed the tax gap. These results indicate a failure of 15 to 16 percent of individual tax payers to fully pay their taxes. IRS enforcement activities recovered roughly $55 billion of that total gap, leaving a net tax gap of $257 billion to $298 billion.
The tax gap is comprised of three components -- underreported income, underpayment of taxes and failure to file tax returns at all. 80 percent of gap was due to individuals underreporting their income, while non-filing and underpayment accounted equally for the remaining 20 percent.
The IRS reported that underreporting was mostly linked to understated income, not overstated deductions. The agency also determined that most of the understated income was related to business activities, not wages or investment income.
While these figures may appear shocking, they more or less match the results found in a 1988 study. The numbers are also artificially inflated by individuals that fail to file returns and pay taxes. The IRS is not expected to take any new course of action based on these results.
New Law Alters Highway Use Tax Regulations: Installment Payment Option Removed
The IRS has announced significant changes to the federal highway use tax regulations, impacting truckers and owners of heavy highway vehicles. As part of the American Jobs Creation Act of 2004, the option to pay the highway use tax in installments has been eliminated. This change affects filers of Form 2290, Heavy Highway Vehicle Use Tax Return, starting from the tax year beginning July 1, 2005, and ending June 30, 2006.
IRS Approves 2006 Toyota Highlander Hybrid for Clean Fuel Deduction
The IRS has officially recognized the 2006 Toyota Highlander Hybrid as eligible for the clean-burning fuel deduction. This means that taxpayers who purchase this hybrid vehicle new in 2005 can claim a tax deduction of up to $2,000 on their Form 1040.
Gambling Income and Expenses - Taxes
Gambling income encompasses a wide range of winnings, including lotteries, raffles, horse and dog races, and casinos. This income also includes the fair market value of non-cash prizes such as cars, houses, and trips. Understanding the tax implications of gambling winnings and losses is crucial for accurate reporting and compliance with IRS regulations.
