How do you cheat on your taxes?

Answer 1

In countries with large amounts of tax payers, cheating on your taxes can be as simple as just entering inflated and unsubstantiated deductions in such areas as home office deductions, work related expenses, energy efficient tax credits, or charitable deductions. Unlike financial profits and work related income information, this type of information is not normally reported to the IRS. The idea behind this type of cheating is that a regular once-over by authorities to compare information they have on file with what is on the tax form will match, and the tax return will be allowed to slip by without significant review. Large enough numbers or changes in total amount to be refunded, however, will probably flag that tax return for review by authorities. In addition, random audits can be performed, so numbers may come under, and wilt under, review. The opposite tact can also be taken... instead of inflating the deductions or creating fictitious deductions, the tax cheat hides income. The most common occurance of this resides in workers who receive tips, which is why in the US professions such as Waitress/Waiter/Bartender are associated with a higher rate of audits. Others may perform jobs for cash, work often called "under the table", and then not report that cash as income. Underreporting income is often seen as a safer way to cheat on taxes than creating fictitious information, as there is often no record of the transaction for auditors to follow, and no way for them to determine that money was exchanged for service. Often times, people will be caught when they attempt to hide too much income, and can't explain where capital came from for high-dollar purchases such as new boats, houses, vacations, etc., or can't explain large amounts of reported interest income from accounts used to hold the extra cash. Finally, there is the legal "cheating"... that is taking advantage of legal loopholes in tax law to cheat against the spirit and intent of the income tax. Many, however, do not consider this cheating as nothing illegal is being done. The truly wealthy often take this route, and find more protection in tax shelters and loopholes than they would attempting to doctor a tax return that, because of high tax rate and dollar amounts, will probably be under more scrutiny than an average citizen. Tax authorities are often some of the most ruthless of persecutors, and because it is recognized as the life blood of the government at all levels, those that cheat on taxes will not find much mercy under review, punishment, or at any court level where appeals may be made, even if the cheat was an honest mistake in understanding the complicated tax laws. Fines for tax cheats not only are designed to recover any loss of funds, but extend into punative amounts of money to assure that the cheat could not make any financial gain even over time, and very often must pay back in penalties many times what even the most savy investor could have made from the money in profit. Also, tax courts are given wide authority to assure the money is returned, including not only garnishment of wages, but immediate liquidation of physical assets and the sealing of bank accounts. Recent actions by the US in applying pressure to foreign countries have also resulted in those countries opening up banking systems traditionally considered secure, such as Cayman and Swiss accounts.