I keep hearing that its mostly the wealthy who evade tax, but I don't understand it. Service workers love being tipped in cash because its easy to not report. OTOH the wealthy have more to lose if they're caught, and can afford to pay their taxes and accountants.
Even if that's true, the number of dollars being evaded is substantially lower. Not reporting $2000 a year in tips isn't exactly going to have the same effect of a billionaire not reporting $100,000,000 of their income.
There are plenty of legal ways to evade (or at least not pay) taxes as well, though. An easy way, for example, is to store wealth in the form of stock; generally you don't pay taxes until you sell, so increased value is ignored until then, but once you have that many assets you can borrow money using the stock as collateral, and in some cases I believe you can even write off the interest. All of this is perfectly legal, and I'm not sure if it can or should be "fixed", but a lot of cash that might otherwise be taxed simply isn't.
For that matter, they could also buy a piece of art for a million dollars, a year later get it appraised as worth $40 million, donate it, and then write off $39 million. Again, as far as I know this isn't strictly illegal, but it can be used to evade taxes.
> For that matter, they could also buy a piece of art for a million dollars, a year later get it appraised as worth $40 million, donate it, and then write off $39 million. Again, as far as I know this isn't strictly illegal, but it can be used to evade taxes.
This is so wrong it hurts my brain. The IRS requires using a qualified appraiser, and none of them will suddenly appraise an artwork for 40x its last sold value. The IRS aren't fools-- they'll quickly clamp down on such an anomaly.
Even if this amateur scheme were true, the individual wouldn't write off $39 million. They'll deduct the tax rate (%) of $39 million.
Isn't this one of the reasons why most very expensive art pieces are sold in auctions? The auction acts as a qualified appraiser because of price discovery via competition makes the price very real (after all, what is price but supply and demand?)
Although I guess there is nothing stopping Soteby's from setting the base price absurdly high to begin with . . .
It's all layers of legalized scams. Business expenses, mortgage interests on investment properties, technically charitable donations, massive tax exempt funds, etc. And all these interacting in creative ways.
not sure how you keep hearing this, the IRS is very clear that lower income filers commit much more tax fraud which is why they focus audits on filers in this income bracket because it generates the best returns
I do wonder if part of this is because lower-income people don't have the legal resources to fight this though. If a billionaire hides their wealth in an illegal way and they're caught, they'll hire a bunch of lawyers and fight against, potentially dragging a court case out for years, and costing the taxpayers millions of dollars.
