Mental Accounting of Self-Employed Taxpayers: On the Mental Segregation of the Net Income and the Tax Due

Mental accounting practices of self-employed taxpayers are investigated in two studies. Interviews (N = 30) revealed that perceptions of the tax due differ widely. While a majority mentally segregate the tax component from their net income, others claim ownership of the gross income as a whole and consequently experience a loss when paying taxes. A survey (N = 172) shows that mental segregation is associated with age, income, and number of employees, and is further related to attitudes towards taxes and to self-reported compliance. It is concluded that especially inexperienced self-employed should be trained in favorable mental tax accounting practices to foster voluntary compliance.