Would You Consider This Tax Evasion?

[Commodore]

First thing's first: In the scenario I am about to describe, I am not interested in whether or not the law says what follows is tax evasion (I'm pretty sure it's not); I am interested in whether or not YOU would consider it tax evasion if you were the one making the rules.

Okay, so here's the situation: A majority of my current income is non-taxable. It comes from a combination of the living allowance from the GI Bill and VA disability compensation from an injury I got in the Army. Both sources are completely non-taxable and are enough to cover all of my household expenses. I am currently self-employed though, and earn enough money to build up a nice little savings that I can eventually start investing with.

Anyway, since I am self-employed I don't pay any taxes throughout the year and would normally pay when I file my tax return forms. Well, to avoid paying those taxes and keep all the money I make, I am intentionally throttling my income to ensure I stay below the poverty level. From what I have read, people with a taxable income level that is below the poverty level will end up having to pay $50 at the most. Keep in mind, I am not being dishonest with the government about how much I earn, I'm just intentionally earning less than I could to avoid paying taxes. To sum it all up, I currently have a total income level that is well above the poverty level, but most of it is untaxable, and the amount that is taxable I am deliberately keeping below the poverty level, so as to effectively make that amount untaxable as well.

So, if you were the one in charge of tax policy, would you consider intentionally remaining below the poverty line to avoid taxation as a form of tax evasion? If so, should there be penalties for people like me who engage in such a practice?

 

[Perfection]

(Warning: Don't take tax advice from random internet idiots)

Assuming your company is an [wiki]S Corporation[/wiki] then any profit you have is considered taxable income and not reporting is tax evasion. In order to not pay taxes you need to spend whatever profits you earn on appropriate expenses. You can't simply dump money into a company savings account and expect it to not be considered income.

Consult a CPA.

 

[Commodore]

(Warning: Don't take tax advice from random internet idiots)

Assuming your company is an [wiki]S Corporation[/wiki] then any profit you have is considered taxable income and not reporting is tax evasion. In order to not pay taxes you need to spend whatever profits you earn on appropriate expenses. You can't simply dump money into a company savings account and expect it to not be considered income.

Consult a CPA.

Well this was more of a morality question, not really looking for advice. I am also not incorporated or really "running a business" per se, I'm just self-employed. I also report my income to the IRS, so it's not like I'm hiding my earnings from them. The thing is, I am intentionally keeping my taxable earnings at a point that the government would consider me being below the poverty level, and thus allow me to live basically tax-free while still having a total household income that is well above the poverty level since about 75-80 percent of my income is non-taxable since they are VA benefits.

So I am asking if you were in charge and your word was law, would you declare such a practice as tax evasion? I ask because I actually got into a conversation with a friend about this and he is of the opinion that such a practice should be considered tax evasion. But even if we did consider intentionally remaining under the poverty line tax evasion, what could we really do about it as a society? It's not like the government can just start demanding that all those below the poverty level start earning more so they can pay taxes like everyone else.

 

[Birdjaguar]

It is not against tax law to earn less than you could.

You should buy Turbo Tax and enter all your income there and see what it says about your total tax liability. You are parsing your income into separate buckets to keep any one bucket from going over the poverty limit.

I think you should owe some tax. I think I would take your total income from all sources and find out the tax rate on that. Then I would start subtracting your GI and disability income from your total income until you had subtracted an amount equal to the poverty level. that and then apply that rate to the amount of self employment income

GI $: 10,000
Disability $: 12,000
Self Employment $: 18,000
Total $: $40,000

Tax rate on $40,000: 20%

Poverty level $: 24,000

Tax owed:

24,000-10,000-12,000=2,000
18,000-2,000=16,000

tax = 20% of 16,000 or 3,200

 

[Timsup2nothin]

Tax evasion begins when you say "the government doesn't pay me to keep track of every payment that comes my way" (which they don't) and since I am not interested in being an unpaid accountant for them or hiring one with my money for their benefit the only income I count is the income that shows up clearly on someone else's bank statements...cash that goes in my pocket and bounces back out without leaving a mark I don't bother to track.

As to the 'morality' of this illegal behavior...or your absolutely legal behavior...what is the government likely to do with your money that will do me more good than whatever you are going to do with it? Not a darn thing. Keep what you can.

 

[Wolfbeckett]

I'm not sure I'd consider intentionally hamstringing your earnings tax evasion. But if I were in charge what I would do is make it so that your non taxed VA earnings would still count for the purposes of determining what level your non VA earnings should be taxed at. This seems like a pretty lame loophole to abuse, and as one of the taxpayers who is literally funding your VA benefits, it's not one that I'm particularly happy to hear is being abused.

 

[Smellincoffee]

It's more like avoiding taxes.

So, if you were the one in charge of tax policy, would you consider intentionally remaining below the poverty line to avoid taxation as a form of tax evasion? If so, should there be penalties for people like me who engage in such a practice?

I'm one who considers 'tax' just a shorter word for 'tribute', and what you've suggested is disgusting. I say this in a friendly way.

 

[nc-1701]

I don't understand the logic in this... You are reducing your income to keep the government from getting anything? Is this just for the sake of being a <male genitalia>? It won't save you money...

It's not morally wrong either, just kind of dumb.

 

[JollyRoger]

First thing's first: In the scenario I am about to describe, I am not interested in whether or not the law says what follows is tax evasion (I'm pretty sure it's not); I am interested in whether or not YOU would consider it tax evasion if you were the one making the rules.

Okay, so here's the situation: A majority of my current income is non-taxable. It comes from a combination of the living allowance from the GI Bill and VA disability compensation from an injury I got in the Army. Both sources are completely non-taxable and are enough to cover all of my household expenses. I am currently self-employed though, and earn enough money to build up a nice little savings that I can eventually start investing with.

Anyway, since I am self-employed I don't pay any taxes throughout the year and would normally pay when I file my tax return forms. Well, to avoid paying those taxes and keep all the money I make, I am intentionally throttling my income to ensure I stay below the poverty level. From what I have read, people with a taxable income level that is below the poverty level will end up having to pay $50 at the most. Keep in mind, I am not being dishonest with the government about how much I earn, I'm just intentionally earning less than I could to avoid paying taxes. To sum it all up, I currently have a total income level that is well above the poverty level, but most of it is untaxable, and the amount that is taxable I am deliberately keeping below the poverty level, so as to effectively make that amount untaxable as well.

So, if you were the one in charge of tax policy, would you consider intentionally remaining below the poverty line to avoid taxation as a form of tax evasion? If so, should there be penalties for people like me who engage in such a practice?

If you keep your earned income low enough to where it is below your standard deduction and allowable exemptions, you will have zero taxable income for the purposes of income tax. However, you would still be on the hook for self-employment tax. Failure to file a return under these circumstance is a federal crime.

 

[warpus]

I am intentionally throttling my income to ensure I stay below the poverty level.

If you have found a way to do that legally such that everything is legal and there is legality throughout, then you are probably fine. It is fine by me; I don't see anything immoral with only grooming 17 poodles a week while you could groom up to 50.. or whatever.

But if you are re-distributing profits and/or doing funny accounting as a way to stay under this level.. then I would probably just say "why bother?"

 

[JollyRoger]

Plus, it seem little silly to throttle income to avoid taxes. By making what you can, you still end up further ahead despite the taxes. Plus, if you are supervising your wife's housework in return for being the breadwinner, she should be able to make sure you are not shirking on the breadwinning.

 

[cav scout]

I'm not sure I'd consider intentionally hamstringing your earnings tax evasion. But if I were in charge what I would do is make it so that your non taxed VA earnings would still count for the purposes of determining what level your non VA earnings should be taxed at. This seems like a pretty lame loophole to abuse, and as one of the taxpayers who is literally funding your VA benefits, it's not one that I'm particularly happy to hear is being abused.

Why do you call it a lame loophole and accuse Commodore of abuse when the law is clearly written to intentionally exclude VA compensation from any tax liability? If you don't believe that veterans have earned this benefit then by all mean lobby to get the law changed. But if you want to get all indignant about how you have literally funded his VA benefits maybe you should first consider how he has literally "funded" your way of life by placing himself in harms way and enduring hardships you couldn't even imagine on your behalf.

 

[Wolfbeckett]

It's a loophole because the whole point of income below a certain level being tax free is that most of the people making that kind of income are living in poverty and can't afford to pay taxes. That's not the case here, he has himself admitted that he is very far from living in poverty. He's exploiting a tax system that is intended to help people that are in desperate need of help just to avoid giving anything back. That is an exploit in my book.

And feel free to get right the hell out with this " he has literally "funded" your way of life by placing himself in harms way and enduring hardships you couldn't even imagine on your behalf". Not only did I not ask him to do that, but the vast majority of US military action in the last 5 or 6 decades has not been of the "funding our way of life" sort, it's been of the "maintaining military bases all over the world for no benefit" sort, or the "spread democracy at the tip of a sword whether they want it or not" sort, or the "destabilize the Middle East to keep Israel strong" sort. So don't act like I'm obligated to fall on my knees in gratitude for his selfless service.

 

[Timsup2nothin]

Plus, it seem little silly to throttle income to avoid taxes. By making what you can, you still end up further ahead despite the taxes. Plus, if you are supervising your wife's housework in return for being the breadwinner, she should be able to make sure you are not shirking on the breadwinning.

The last year I made a recorded income I paid over sixty-six thousand dollars in assorted taxes. I don't like what they do with their cut. So I stopped making money.

I had to alter some expensive habits, but overall I think my life is much better.

 

[Archbob]

Yeah, to me it doesn't make any sense at all to make less money just to pay less taxes but no, what you are doing is not illegal or immoral.

 

[cav scout]

It's a loophole because the whole point of income below a certain level being tax free is that most of the people making that kind of income are living in poverty and can't afford to pay taxes. That's not the case here, he has himself admitted that he is very far from living in poverty. He's exploiting a tax system that is intended to help people that are in desperate need of help just to avoid giving anything back. That is an exploit in my book.

You don't seem to understand basic definitions so I will help you out:

A loophole is an ambiguity or inadequacy in a system, such as a law or security, which can be used to circumvent or otherwise avoid the intent, implied or explicitly stated, of the system

As you can see a loophole is something that is used to circumvent the intent of the system.

So lets look at what the law says:

payments of benefits due or to become due under any law administered by the Secretary shall not be assignable except to the extent specifically authorized by law, and such payments made to, or on account of, a beneficiary shall be exempt from taxation, shall be exempt from the claim of creditors, and shall not be liable to attachment, levy, or seizure by or under any legal or equitable process whatever, either before or after receipt by the beneficiary. The preceding sentence shall not apply to claims of the United States arising under such laws nor shall the exemption therein contained as to taxation extend to any property purchased in part or wholly out of such payments. The provisions of this section shall not be construed to prohibit the assignment of insurance otherwise authorized under chapter 19 of this title, or of servicemen’s indemnity.

So as you can see, VA compensation is not taxable because Congress specifically made it not taxable- it's literally the law of the land, explicity stated. Therefore not a loophole or an exploit.

Now I can tell that you don't like the law. It really rubs you the wrong way that Commodore doesn't have any tax liability on the compensation he receives for incurring a service-connected disability. But lecturing him about how you are "literally funding" his benefits and then accusing him of immorally exploting the system is just vile. You have been grossly unfair to Commodore in an arrogant and ignorant manner.

Also, you are a total hypocrite if you have ever had any of the following income:

Most types of income are taxable, but some are not. Income can include money, property or services that you receive. Here are some examples of income that are usually not taxable:
•Child support payments;
•Gifts, bequests and inheritances;
•Welfare benefits;
•Damage awards for physical injury or sickness;
•Cash rebates from a dealer or manufacturer for an item you buy; and
•Reimbursements for qualified adoption expenses.

Some income is not taxable except under certain conditions. Examples include:

•Life insurance proceeds paid to you because of an insured person’s death are usually not taxable. However, if you redeem a life insurance policy for cash, any amount that is more than the cost of the policy is taxable.

•Income you get from a qualified scholarship is normally not taxable. Amounts you use for certain costs, such as tuition and required course books, are not taxable. However, amounts used for room and board are taxable.

And do you ever plan to get Social Security benefits? At least 15% of your benefits will be excluded from taxes but I doubt you will ever write the IRS an extra check for that 15% because it's a "pretty lame loophole to abuse."

And feel free to get right the hell out with this " he has literally "funded" your way of life by placing himself in harms way and enduring hardships you couldn't even imagine on your behalf". Not only did I not ask him to do that, but the vast majority of US military action in the last 5 or 6 decades has not been of the "funding our way of life" sort, it's been of the "maintaining military bases all over the world for no benefit" sort, or the "spread democracy at the tip of a sword whether they want it or not" sort, or the "destabilize the Middle East to keep Israel strong" sort. So don't act like I'm obligated to fall on my knees in gratitude for his selfless service.

No, you get right the hell out with your hypocrisy. You didn't ask Commodore to serve his country? Well he didn't ask you to pay income tax so don't lecture him like he owes you something for what you have "literally funded." He has given you more of himself than you could ever give him. He has served in your place because you lacked the civic virtue to serve yourself. You can complain about policy all you want to minimize and discredit his service but if you are a U.S. Citizen you share responsibility for that policy.

 

[Zelig]

I significantly throttle my income by working 8 rather than 16 hours per day. Cheats the government out of well over half the taxes they'd get from me.

 

[Wolfbeckett]

No, you get right the hell out with your hypocrisy. You didn't ask Commodore to serve his country? Well he didn't ask you to pay income tax so don't lecture him like he owes you something for what you have "literally funded." He has given you more of himself than you could ever give him. He has served in your place because you lacked the civic virtue to serve yourself. You can complain about policy all you want to minimize and discredit his service but if you are a U.S. Citizen you share responsibility for that policy.

Umm... no. Sorry, you're wrong. What I said is no way hypocrisy. The difference is that he volunteered for military service. I didn't volunteer to pay income taxes, the government takes them from me by force via threats of imprisonment. And once they do take them, I get no say in how they are spent. You can feel free to fawn over the military all you want, but don't act like I'm obligated to do the same.

And by the way, your ad hominem attack of saying that I "lacked the civic virtue" to join the military is ALSO wrong, surprise surprise. I didn't lack anything, the military was never even an option for me because I'm epileptic and epilepsy is an immediate disqualification from military service. So feel free to stop talking out of your ass as if you know anything about me.

Lastly, in terms of the tax issue, you're completely misrepresenting what I said. I didn't say that his VA benefits should be taxed. I have no problem with those being tax free. What I said is that they should count as normal income for the purposes of determining his tax liability on his other (taxable) income. So to pull numbers out of thin air, if his VA benefits are 25K annually, and he's making 25K from working, that 25K that he makes from working should be taxed as if he is in the 50K tax bracket. Don't tax the first 25K, but look at his whole income when determining how to tax the second 25K. When I say he is circumventing the intent of the system, I do not mean the VA benefits system, I mean the normal civilian taxation system. He is circumventing that system by using a loophole which shows him as technically being below the poverty line even though he is not below the poverty line, because the government simply discards his VA benefits from the equation entirely. Nowhere did I even imply that his VA benefits not being taxed was an abuse of the system, I don't know how you even got that out of my initial post.

 

[BvBPL]

Assuming you are actually throttling back your income and profits as a means to pay less taxes and not throttling back in a manner that otherwise profits you then I do not have a moral concern about your scheme.

However, I would find it morally preferable if you did not throttle back your income and instead used charitable contributions as a means to limit your tax liability. Such contribution may include providing low or no cost services to others so if you are already not charging your church, say, for whatever services you provide them as a means to throttle back your income then that is commendable.

The problem with calling an intentional throttle down of income as "tax evasion" is that there is no profit in it, generally. In most cases, a person does not lose money to taxes by earning more. If you are in the 20% tax bracket and your earn a dollar then you pay twenty cents and keep eighty. If you chose not to earn the dollar then you would never have that eighty cents.

 

[Perfection]

So I am asking if you were in charge and your word was law, would you declare such a practice as tax evasion?

Hell no, I'd consider it the rational response from someone who is trying to make ends meet.

It's not your fault the tax policy puts you in a screwed up position. Your some dude who's just trying to get by.

If I made a screwed up system it ain't your fault to try to optimize.

Little guy gets screwed enough.