i noticed lawndave’s post that was ended because this site is not for dicussing how to get away with illegal activity. So what makes avoiding taxes illegal? I’m thinking of things such as not purchasing food from the grocery store, but instead making the food yourself. (i acknowledge that producing all of one’;s food isnt practical though.) I also think of working less so that one does not fall into the next tax bracket. These are two examples of where one would avoid taxes, but i dont think they are illegal. Or are they and im just a fool that never acknowledged that? And if so what law(s) are being broken?
Oh and if you are thinking of examples of that are illegal, please try to exclude them from here. I would like this thread to stay open. I know everyone (inlcuding me…possibly more so than others) sometimes forget this.
Cutting back on your income to reduce taxes is perfectly legal.
It depends on the tax. Income tax is based on your income, and there are many ways to reduce that (opening an IRA, taking a deduction for a home mortgage, etc.).
A sales tax is based on what you pay. If you make fewer purchases, you will reduced your tax. The government can’t force you to spend money.
What is illegal is evading taxes.
Hiding income to avoid taxes is illegal; making less income is not. I’m not sure what groceries have to do with this – if you’re talking about sales tax, most states do not tax sales of food.
yawndave’s thread was closed because it was about hiding from the IRS, not reducing one’s taxes.
Well, there are still many legal “tax shelters”. A good one is an IRA. Then there is a residential rental, where’d you have a large deuctable paper loss due to depreciation, and a more or less even cash flow. You can buy Tax Free bonds.
A home is a nice tax shelter- write off the Interest & Taxes, and then the gain from sale is Tax free also (YMMV, there could be some tax consequences, but in general, it’s all gravy). In a good market, you could buy a house, fix it up (sweat equity) live in it for 5 years, sell it for a 100 grand profit (all tax free), buy another, repeat as nessesary. That comes to $20000 tax free every year.
Income management is a valid tool to control your tax liability. As most of us are taxed on a cash rather than an accrual basis (taxed when received rather than when earned), your ability to defer income, particularly near the end of the year, can be important. If you tend to work a lot of overtime in November and December, for instance, you might be able to delay submission of your overtime report so that it won’t process in the current year.
You cannot receive income and delay reporting it, but you can usually delay receipt of the income when you use cash basis accounting.
We’ve discussed this too many times:
http://boards.straightdope.com/sdmb/showthread.php?s=&threadid=42859
http://boards.straightdope.com/sdmb/showthread.php?s=&threadid=121312
http://boards.straightdope.com/sdmb/showthread.php?s=&threadid=49821
http://boards.straightdope.com/sdmb/showthread.php?s=&threadid=161572
FWIW: Apparently tax avoidance is used to refer to legal means of not paying taxes, eg. taking deductions you are legally allowed, making transactions at the most tax-advantageous time, and tax evasion is used to refer to illegal methods of not paying taxes (that you hence legally owe) eg. claiming personal expenses as buisness deductibles.
<Terry Pratchett>
You have allowed this wholesale tax avoidance?
Oh, the taxes haven’t been avoided. Or even evaded. They just haven’t been paid.
</TP>
Also, I think it’s pretty clear that the moderator was referring to discussion of not paying taxes legally owed. Not owing them in the first place (say, by earning no money, or moving to a country with no taxes) is fine.
Note that in almost all circumstances, it doesn’t make sense to work less to avoid going into the next tax bracket. Going up a bracket increases your marginal tax rate; that is, every new dollar gets taxed at the higher rate. But the higher rate doesn’t apply to the already-earned dollars. For instance (making up the numbers 'cuz I forget the real ones), if the tax brackets are 5% up to $1,000, 10% up to $5,000, and 25% therafter, then someone making $8,000 pays 5% of the first thousand ($50), 10% of the four thousand dollars between $1,000 and $5,000 ($400), and 25% of the three thousand dollars he has in income greater than $5,000 ($750). All told he pays $1200 in taxes. Although he’s in the 25% tax bracket, his average tax rate is 15%.
–Cliffy