More Americans think it's OK to cheat on their taxes

[bjl584]

More Americans say it's OK to cheat on taxes- MSN Money

[disneysteve]

It is so easy and there are so many ways to "cheat" on your taxes that I doubt that anyone pays every single penny that the law says they should.

[GREENBACK]

Tax laws are complicated enough that you sometimes "cheat" without knowing it.

[GrimJack]

It is interesting that there is an increase in cheating while the chances of getting audited are increasing. There are some pretty complex routines in play to spot possible cheating/fraud.

Along those lines, there were over 350,000 cases of ID theft on tax refunds last year - up from 50,000 the year before. The fraud/ID theft routines are getting their shake-down now as most ID theft happens between Jan 17 and Feb 17.

[Tonyall]

Originally Posted by GREENBACK

Tax laws are complicated enough that you sometimes "cheat" without knowing it.

That happened to me last year. I had missed filing a K-1 for my LLC. Even though not filing them did not make one spec of difference on my taxes and the company was at a operating loss, they hit me with a nearly $1600 fine!

I called them and they told me I could file an appeal. While I was waiting for an answer, I suddenly got a registered mail saying the IRS could start seizing my assets the following day!

I called them again and they said they never received anything from me (I had mailed it). The woman I talked to that time seemed a lot nicer. She told me to fax in the k-1 and ended all my problems right there without any kind of a fine.

Shows the kind of power the IRS has.

[moneybags]

Originally Posted by disneysteve

It is so easy and there are so many ways to "cheat" on your taxes that I doubt that anyone pays every single penny that the law says they should.

Many people do. I did taxes for 10+ years. I would disagree that with your comment, as many people fear the IRS and want their taxes done correctly. I even had a few clients that were honest about cash earnings they had from little side jobs.

[disneysteve]

Originally Posted by moneybags

I even had a few clients that were honest about cash earnings they had from little side jobs.

I think those clients are probably the exception. Half the reason so many people take cash jobs is to avoid paying taxes. That's why the employer pays people "under the table" as well, to avoid the employer-based taxes.

I know plenty of people who do at least something to limit the taxes they pay. It might be under-reporting income. It might be failing to report cash income. It might be overestimating charitable donations. There are dozens of ways to cheat if you want to and there is virtually no way for the IRS to catch any of it. If I say I gave $100 worth of goods to Goodwill, how can the IRS disprove that? If I go around and mow lawns and earn $500 cash and never deposit it in a bank account, how would the IRS know? If I hit a jackpot of less than $1,200 at the casino, there is no record of it. Do you really think most people report all of that stuff? I certainly don't think so.

[moneybags]

Originally Posted by disneysteve

If I say I gave $100 worth of goods to Goodwill, how can the IRS disprove that? If I go around and mow lawns and earn $500 cash and never deposit it in a bank account, how would the IRS know? If I hit a jackpot of less than $1,200 at the casino, there is no record of it. Do you really think most people report all of that stuff? I certainly don't think so.

If you donate goods, you should be taking a picture of what you donate and keeping it with your tax records. In case of an audit, this is your best protection. In an audit, it is never up to the IRS to disprove anything, it is up to you to prove your income/deductions.

And for the people getting paid cash under the table, they better be saving their money for retirement, because they aren't getting credit with social security for those cash earnings.

For the employers paying employees in cash, they better hope they never get audited. I know someone that did and it caused him financial ruins. While many are getting away with cheating, many are not.

Sorry, I believe in honesty, and tax fraud is something that really irks me.

[Joan.of.the.Arch]

Does the IRS say that we must have photos of those donations? I make a list with description, size, condition and then also get a receipt from Goodwill/ Vietnam Vets/ AmVets/ St. Vincent dePaul. There is a nearby charity I skip because they have unattended boxes and so no receipt. But I must also have photos?

[moneybags]

Originally Posted by Joan.of.the.Arch

Does the IRS say that we must have photos of those donations? I make a list with description, size, condition and then also get a receipt from Goodwill/ Vietnam Vets/ AmVets/ St. Vincent dePaul. There is a nearby charity I skip because they have unattended boxes and so no receipt. But I must also have photos?

No, they do not require photos, but many people do it.

[BuckyBadger]

I wonder what they consider to be "cheating," though. Are loopholes cheating? (i.e. backdoor Roth for high income earners.)

I say a loophole is exactly that -- a loophole. But I'll bet a lot of people would say that taking advantage of loopholes is "cheating."

[J. Spence Financial]

I do taxes and I must say people better start watching it. The IRS has a lot of autmated systems that check for issues. A lot of people also don't know that the IRS already has your tax documents before you get them. If you don't report something like a small W2 or 1099, you bet they will ask you abou it.

[disneysteve]

Originally Posted by J. Spence Financial

A lot of people also don't know that the IRS already has your tax documents before you get them. If you don't report something like a small W2 or 1099, you bet they will ask you abou it.

I always report W2 and 1099 income. What I wonder/worry more about is income that doesn't generate a 1099 since companies only issue them if you've earned more than $600 from them. I do surveys for probably 30 different companies and only 2 or 3 reach the 1099 threshold each year. I may get as little as $5 from a company or as much as a few hundred. Does the IRS have any way of tracking what I've earned if no 1099 was sent in by the company?

And then there is always ebay and half.com sales. What's the status of those at this point? Does the IRS get any report of what I've sold during the year or is it still an honor system?

[2bfrugal]

Interesing conversation.
I do full time daycare. I report what I earn. But one of my parents reported she paid me far more than she actually did, as she wanted a bigger deduction on her taxes.
I photocopy all checks I get. Her child didn't start coming to me until Oct, but she entered a full years of expenses paid to me, under my social security number. she got audited and the irs came to me for a copy of her records.

[moneybags]

Originally Posted by disneysteve

I may get as little as $5 from a company or as much as a few hundred. Does the IRS have any way of tracking what I've earned if no 1099 was sent in by the company?

And then there is always ebay and half.com sales. What's the status of those at this point? Does the IRS get any report of what I've sold during the year or is it still an honor system?

The IRS could audit a company that paid you $5, and it could lead to a tracing of that payment. While they don't directly have the information if it does not come through the 1099 or W-2, it could be exposed via an audit of the company that paid you (not likely, but possible).

They also have the right to all of Ebay's records if they want them. It would be so easy to get an Ebay report of sellers and their revenue. I would not be surprised to see this happen in the future.

[Angio333]

I have no problem using the tax law to every possible credit, deduction, etc. However, purposely not claiming income or purposely cheating on your taxes is wrong.

Render onto Ceaser what is Ceasars, but not a penny more.

[SnoopyCool]

Originally Posted by disneysteve

If I say I gave $100 worth of goods to Goodwill, how can the IRS disprove that?

If the IRS questions your tax return in any way, you have to prove to them what you put on there. And they have to agree that your proof is substantial enough to take that deduction on your taxes, or they'll disallow it. I suggest using Deduction Pro or some other software to track your noncash donations, and always keep receipts of those donations. And if you make a substantial donation, such as a car, you need to keep an appraisal letter on that car and fill-out a Form 8323 at tax time.

I doubt that most people on this forum would try to exaggerate their deductions or minimize their earnings. However, working in the tax prep industry, I've seen audits where people were just so flippant about doing a correct tax return that it's almost unbelieveable (disclaimer: we did not prepare those returns!!!). They do it because they think they won't get caught. Really? Be honest on your return.

It is my opinion that the more our government hurts for money, the more they'll hammer taxpayers. Dot your i's and cross your t's.

[disneysteve]

Originally Posted by SnoopyCool

If the IRS questions your tax return in any way, you have to prove to them what you put on there. And they have to agree that your proof is substantial enough to take that deduction on your taxes, or they'll disallow it.

That's what I always hear, but nobody ever seems to know what that means. If you go to Goodwill's website, they have a list of item values for tax purposes. For each item, they give a somewhat broad range of prices. For example, "Sweaters: $5-$15". I always claim the lower end of their range so if ever questioned, I can provide a list of items donated and how I arrived at their values. The problem is I made the list. Goodwill just gives me a receipt that says "1 bag of clothing". It doesn't say what was in the bag. It could have been a bag of designer clothes. It could have been a bag of old sheets and towels. If I tell the IRS the clothing was worth $100 based on my list and Goodwill's value guide, how can the IRS say otherwise? They have absolutely no way to know what I actually donated.

For the record, I'm not saying that I inflate my donation value. I don't. I make an accurate list and use Goodwill's price guide for values (always using the lowest figure in the range). I just see how simple it is to game the system and claim a larger deduction.

[Joan.of.the.Arch]

I try to partly get around the problem of the too-brief Goodwill receipts by taking in donations frequently enough that I can get the items listed on the receipt more accurately. So instead of "one bag clothing, one bag household goods," It can say "4 men's shirts, blender NIB." Then I may be at GW again soon with another donation, "3 women's skirts, 8 pl set china".

Of course, the workers here set up a table and allow me to fill out the list myself if I go on a weekday! But beyond that, I also attach my own handwritten list with fuller description, and price I will claim. I'm very familiar with prices that will go on the items since I shop there, too. I also note on my list that the prices are verified with the online source, and I write down the URL.

But maybe I'll resort to the photo-taking, too. I'd just hate to have to do it. It would mean separating my paper tax info from the photos, as I am not about to print out photos of donations to store it with the GW receipts. I'd store it on computer and have to remember to transfer those files when I get a new computer. Actually for a couple years I did also make a computer file of the donations (but not with photos), but it seemed like overkill.