As a law-abiding citizen, you probably pay taxes, but how much do you really know about them? You likely have a general idea about tax brackets, your state’s income tax rules, and that certain red flags can trigger an IRS audit, which are all givens when it comes to general tax knowledge. But the tax code is over 70,000 pages long (more on that on page 10), according to The Motley Fool, so those few facts are just the tip of the proverbial iceberg when it comes to tax knowledge. Read on to discover some of the most surprising things you probably never knew about taxes.
1. About 1% of returns are audited
Although being audited is a big fear for many taxpayers, it’s a lot rarer than you might think. According to a government release, the IRS audited nearly 934,000 individual tax returns in 2017. While that may seem like a significant number, it was actually the lowest number of audits since 2003 and the overall chance of being audited dropped to just 0.6 percent, according to the same release. The Motley Fool also notes that about 75% of audits are performed via mail so even if you are audited it’s unlikely you’ll come face to face with an IRS inspector.
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2. Even IRS employees break the law
While it’s easy to picture tax fraud and evasion as a crime reserved for mob bosses and celebrities, the truth is tax evasion is the most commonly committed tax crime and even IRS employees commit it. A report from the IRS stated that almost 1600 IRS employees committed tax fraud over a 10 -year period, according to Fox News. What’s more concerning is that most of those employees were not fired even though they should have been according to a 1998 law.
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3. The largest portion of your taxes goes to health care
You might be surprised to learn that even your federal taxes end up back in your own community, according to National Priorities. The rough break down of the largest three funds receiving tax money is about 29 cents goes towards health care funding, 23 cents towards the Pentagon and military spending, and 14 cents for interest on federal debt, for every tax dollar paid. Tax money also goes towards veteran benefits, education, and infrastructure, among other things.
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4. Some individuals and corporations pay no taxes
It might be hard to image, but some people end up owing no taxes at all. In fact, about 44 percent of Americans pay no federal income tax, according to The Motley Fool. It’s not just individuals though. National Priorities reports that many profitable corporations are able to use a loophole to get out of paying taxes. In fact, over an 8-year period, one hundred Fortune 500 companies managed to get out of paying any taxes despite being profitable. That’s some loophole!
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5. People who file electronically make less errors
Unfortunately, there’s no science behind it. The IRS reports that the error rate is 21 times higher for paper returns than that of electronically-filed returns, according to The Motley Fool. Some of the most common mistakes people make are math errors, writing an inaccurate or missing social security number, and not signing the forms, according to the IRS. Filing mistakes can lead to audits so it’s best to triple check your paperwork to ensure everything is filled out correctly.
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6. President Abraham Lincoln started the IRS
The roots of the IRS we know today can be traced all the way back to the Civil War. To pay for war expenses in 1862, President Lincoln created the position commission of Internal Revenue and enacted an income tax. The tax was later repealed long after the way had ended. In 1913, the 16th amendment was ratified, which gave the government the authority to enact an income tax upon U.S. citizens after the supreme court had deemed it unconstitutional in 1895. The organization received a name change in the 1950s and thus became the IRS of today.
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7. There are over 100 free file forms
Most people are familiar with 1040s or 1099s, but did you know just how many tax forms there actually are? According to the IRS website, there are over 100 free file fillable forms. From reporting gambling winnings to itemizing deductions, there’s pretty much a form to cover anything you may need to report.
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8. You can potentially save on your property taxes by shopping local
It sounds almost too good to be true but some municipalities are partnering with a third-party company to reward property owners for supporting local businesses. The program is free to sign up for and requires local businesses to sign on to participate, but offers people a rewards percentage for their patronage.
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9. Americans work 100 hours to afford their tax bills
While some low-income individuals might be able to get out of owing taxes thanks to deductions, the average American has to work 100 hours to be able to afford their tax bills, according to News Blaze. They did the work math, too. If you figure the average American worker puts in a roughly 47-hour work week, that means they’re spending approximately two weeks a year working just to pay their tax bills.
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10. The tax code is unbelievably lengthy
In 2013 the tax code hit over 4 million words. That’s the equivalent of reading War and Peace 3,266 times — and seriously who wants to do that? It’s been a commonly touted fact that the tax code is over 70,000 pages long. According to The Vox, that’s not entirely true. The actual tax code itself is just around 2,600 pages long and the rest of the pages are information about the tax code. Whether or not you think it counts, all of the collective information about the tax code, including the code itself, is over 70,000 pages and that’s just way more tax information than anyone needs.
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11. The average tax refund in 2017 was $2,895
In 2017 the average refund for individuals was $2,895, but the average varied by state. Texas had the largest average refund at $3,133 while Montana had the lowest average refund at $2, 367 — even lower than the national average. The 2017 average was lower than the 2016 fiscal year, which saw an average refund of $3,050.
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12. Whistleblowers can receive a large award
The IRS offers a whistleblower informant award for anyone who has information about people not paying their taxes. If the information you provide is used by the IRS, you could be entitled to up to 30% of the owed taxes, penalities, and other amounds collected. This is definitely one time that it pays to say something if you see something.
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13. Over 1 million tax professionals are hired every year
Despite tax preparation software advertising how easy it is for people to do their taxes on their own, over 1 million accountants are hired to help with taxes every year in America. The Motley Fool reports that people spend over 8.9 billion hours annually complying with federal tax laws. To top that all off people are still spending $29.6 billion every year on tax preparation software, according to The Motley Fool. It seems even with all the accountants being hired, a large majority of people are still choosing to try to do their taxes on their own.
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14. Every president since Jimmy Carter has released their tax returns
Except Donald Trump, that is. In fact, there are even tax returns available online for presidents prior to Jimmy Carter including Ford, Nixon, Truman, and FDR, thanks to the Tax History Project. The only publically-available tax returns for Donald Trump included in the project are from 2005. He has not released any more recent financial information during his presidency, unlike his predecessors.
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15. Civilizations have been paying taxes since the beginning
The earliest known taxes can be traced all the way back to Mesopotamia, almost 4500 years ago. According to eFile, people during that time paid taxes throughout the year using livestock, which was common currency for them. Taxes can also be traced to ancient Egypt, where historians discovered the earliest form of a death tax, and the Romans, who taxes urine since it was highly sought after in large quantities for the tanning industry. You could almost say that as long as there have been governments, peoples have been taxed.