Tuesday, February 15, 2011

Tax Cheats

Cheating on taxes is illegal. Tax avoidance is okay, tax evasion isn't.

Tax evasion is incredibly stupid as there are so many ways to get caught. As a CPA with former tax auditing experience, trust me when I tell you there are many, many, many ways to be caught.

And one thing to remember about an IRS audit is this: Unlike a court of law where you are innocent until proven guilty, when the IRS comes knocking, with them you are guilty until you can prove yourself innocent.

Another thing to keep in mind is that there is no statute of limitations on tax evasion. Failure to report wages or hiding income could come back to bite someone years and years later.

When caught, tax cheats face substantial penalties, interest on the unpaid tax, embarrassment, criminal charges, and potential jail time.

I was recently speaking with two people when one admitted to being paid under the table to tutor children, and the other admitted to hiring household help (landscapers, babysitters, and house cleaners) without checking their authority to legally work in the United States or properly dealing with employer reporting and taxation issues.

Every tax cheat I have ever known has their self-serving reasons for cheating. Both these women tried to justify their actions though their excuses amounted to little more than "I don't want to pay more taxes."
"The subject of every State ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the State." ~ Adam Smith (1776)
I don't know anyone who wants to pay more tax although this is the way we fund our government and the many services it provides us. Though as Adam Smith pointed out, we all ought to pay our share according to our incomes and people who cheat to avoid this public responsibility, hurt the rest of us who do our civic duty.

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