Thread: Tax Day

Profile of a Tax Cheat
Denise Chow LiveScience Staff Writer LiveScience.com
Wed Apr 14, 8:05 am ET

As Tax Day quickly approaches, millions of Americans are preparing to file their federal income tax returns by the April 15 deadline. Proper compliance is required by law, and yet, every year, the federal government is left to grapple with a tax gap - a discrepancy between what is owed and what is actually collected.

This tax gap is caused by people who accidentally or purposefully underreport their tax liability, underpay their tax reported, or fail entirely to file a return.

For those who knowingly try to dupe the Internal Revenue Service (IRS), what motivates them to do so? Why do people try to cheat on taxes?

According to a July 2009 report released by the IRS, the agency estimates the overall compliance rate for federal income tax returns to be approximately 84 percent. There is, however, a significant amount of revenue that remains unreported or unpaid every year.

In 2005, the IRS estimated the gross tax gap to be in the realm of $345 billion. After the IRS obtained some of that missing revenue through enforcement or other late payments, the net tax gap was still a staggering $290 billion for that year.

Roots of cheating

While anyone in any income bracket can attempt to cheat on his or her taxes, some of the motivations behind trying to deceive the IRS can be explained by stigmas and other polarizing sentiments that fall along more traditional class lines, said David Callahan, author of "The Cheating Culture: Why More Americans Are Doing Wrong to Get Ahead" (Houghton Mifflin Harcourt, 2004) and "The Moral Center: How Progressives Can Unite America Around Our Shared Values" (Mariner Books, 2007). "It's interesting because one of the biggest complaints people have about their taxes is not that they pay too much, or that taxes are too complex, it's that the wealthy don't pay their fair share," Callahan told LiveScience.

Callahan separates people into two main groups: the winning class and the anxious class. The winning class is made up of wealthy individuals, whereas the anxious class is made up of people who struggle more to make ends meet. Cheating on taxes can occur in both groups, Callahan explained, but the motivations behind the dishonesty are often triggered by the underlying tension between them.

This tension is due in large part to the perception that many wealthy people cheat heavily on their taxes, or have tools at their disposal that allow them to evade taxes by storing money in overseas bank accounts or tax shelters, Callahan said. "If you feel that others are cheating on their taxes, especially people who make more money than you, you're more likely able to rationalize cheating on taxes yourself," he said. "Many people in the anxious class who haven't seen their incomes grow, and who were hit hard by the recession, may think, if the people at the top don't pay all their taxes, why should I pay every dime that I owe?"

As a result, many otherwise honest people are tempted to cheat simply because they are operating in a dishonest system. This is a classic dynamic in the cheating culture, said Callahan. "Even if we consider ourselves honest, we believe other people aren't honest," Callahan said. "If there's a perception that everybody does it, more people will be tempted to abandon their integrity and go along with that. Nobody wants to be the only chump that is playing by the formal rules when everyone else is playing by the 'real rules.'"

While the country's federal tax code is considered progressive, some people feel that it grants the wealthy many loopholes - something that further perpetuates the resentment among those who believe the tax burden can sometimes fall unjustly on those who are least able to afford it. "Many wealthy people earn income, such as capital gains, that is taxed at lower levels than regular income," Callahan said. "So, in some cases, a wealthy guy sitting by his pool, living off his stock portfolio is paying a lower tax rate than the guy cleaning his pool. Tax evasion scams by the wealthy are so often revealed, and so there's the perception that the rich cheat heavily on their taxes. There's truth to that perception, which is what keeps it alive."

Why doesn't everyone cheat?

For Dan Ariely, a behavioral economist and author of the book, "Predictably Irrational: The Hidden Forces That Shape Our Decisions" (Harper, 2008), understanding why people cheat is far more simple than understanding why people do not. "We cheat on taxes because we stand to gain money - that's not a big surprise," Ariely told LiveScience. "What's more interesting is why we decide not to cheat and what makes us decide to limit our cheating."

Ariely, who teaches behavioral economics at Duke University, has done extensive research on cheating, and on the motivations behind the various degrees that people cheat.

According to an annual poll conducted by the IRS Oversight Board in 2009, 84 percent of people surveyed said that they thought it was not acceptable to cheat at all on taxes. This leaves 16 percent of people surveyed who believe some form of deception on tax returns is acceptable.

It is important to note, however, that these figures do not represent the actual percentages of people who do (or do not) cheat the IRS.

Through his research, Ariely observed that there are often discrepancies between peoples' perceptions of cheating and their actual behavior. In other words, Ariely found that people operate with moral flexibility, and this sliding scale plays an important role in a person's cheating calculus. "Given the great flexibility of our minds, we can cheat and still feel good about ourselves - but not under all conditions," Ariely said. "We can still feel alright while acting immorally when a few things happen: when we cheat just a little bit - so, if it's not a big transgression - when a lot of people around us do the same, and when the act is more hidden."

Ariely observed that those three main conditions allowed people to cheat and still feel that they were honest, which essentially created a moral threshold that served to limit the deceitful behavior.

Like Callahan, Ariely believes that if people think others are also cheating, it becomes more acceptable for them to cheat as well.

Similarly, if people believe their act of defiance is correcting some wrongdoing in society, it makes it easier to justify the cheating. "Corporate corruption and government misdealing is very salient in people's minds," Ariely said. "It's easier under those conditions to justify misbehavior. If you think of this as an exercise in justification, the last three years have given us a lot of excuses."

Justifying the cheating

Another way people are able to justify cheating is by distancing themselves from the act itself. The very nature of filing tax returns means that people are already slightly removed from the real money they stand to gain. "It's true that taxes are a lot about money," Ariely said. "But, I would suspect that it's easier for people to simply forget a receipt, than to have a receipt and type in a false number. If I pretend that I forgot the receipt, that can help me feel better about cheating, but if I take a receipt that says $1,000 and just write it as $2, that's more challenging. That makes it feel like you're really lying."

In other words, omitting a receipt from the tax return distances the cheating more than outright lying, which helps give a person the moral flexibility for something that would otherwise be reprehensible.

Ariely believes that one way to control the amount of cheating on federal income taxes is by simplifying the tax code. The complexity and ambiguity of the current code makes it easier for people to cheat, because people can interpret it in a way that suits them and is more selfishly beneficial, he said.

Callahan believes that the IRS has made some important changes to curb non-compliance, but still has a long way to go. The introduction of the W-2 form, which requires employers to fill out tax information on behalf of their employees, makes it more difficult for these employees to fudge data on their income tax returns. But, Callahan notes that more oversight is still needed. "The number of people who don't have W-2 incomes has been growing," Callahan said. "Independent contractors, people who are self-employed, doctors, dentists and restaurateurs are all people who don't have W-2 incomes. And there's a lot more of these people than in earlier times."

Still, Callahan says it is imperative that the IRS continue to make improvements to their enforcement capabilities. "It's very important to not let tax evasion get too out of hand," he said. "If you pass a tipping point whereby tax evasion becomes commonplace, and if it's perceived as normal, there'll be less stigma attached to it. Cheating carries less stigma the more people do it. Fortunately, we're not past that tipping point yet."


http://news.yahoo.com/s/livescience/...hkYXljb21ldGg-

The latest income-tax form has been greatly simplified. It consists of only three parts:
1. How much did you make last year?
2. How much do you have left?
3. Send amount listed in part 2.

~~~~~

Why does a slight tax increase cost you two hundred dollars and a substantial tax cut save you thirty cents?

~~~~~

A man walks into a store followed by his ten-year-old son. His son is spinning a quarter in the air and catching it between his teeth. While walking through the store someone bumps into the boy and the coin goes straight into his mouth and lodges in his throat. He immediately starts choking and going blue in the face. His dad starts panicking and shouts and screams for help.
A middle-aged, fairly unnoticeable man in a gray suit is sitting at the snack bar in the store reading his newspaper and sipping a cup of coffee. At the sound of the commotion, he looks up, puts his coffee down, neatly folds his newspaper and places it on the counter. He gets up from his seat and makes his unhurried way towards the boy. When he reaches the boy, the man carefully takes hold of the boy's testicles and squeezes, gently but firmly.
After a few seconds the boy convulses violently and coughs up the quarter, which the man catches in his free hand. Releasing the boy, the man hands the coin to the father and walks back to his seat at the snack bar without saying a word.
As soon as the dad makes sure that his son is OK, he rushes over to the man and starts thanking him saying, "I've never seen anybody do anything like that before. It was fantastic! Are you a doctor?"
"Oh, good Heavens, no," the man replies, "I work for the Internal Revenue Service."

~~~~~

What's the definition of an accountant?
Someone who solves a financial problem you didn't know you had
in a way you don't understand.

~~~~~

A lot of people still have the first dollar they ever made.
Uncle Sam has all the others.

~~~~~

TAX POEM

Tax his land, tax his wage,
Tax his bed in which he lays.
Tax his tractor, tax his mule,
Teach him taxes is the rule.
Tax his cow, tax his goat,
Tax his pants, tax his coat.
Tax his ties, tax his shirts,
Tax his work, tax his dirt.
Tax his chew, tax his smoke,
Teach him taxes are no joke.
Tax his car, tax his ass
Tax the roads he must pass.
Tax his tobacco, tax his drink,
Tax him if he tries to think.
Tax his booze, tax his beers,
If he cries, tax his tears.
Tax his bills, tax his gas,
Tax his notes, tax his cash.
Tax him good and let him know
That after taxes, he has no dough.
If he hollers, tax him more,
Tax him until he's good and sore.
Tax his coffin, tax his grave,
Tax the sod in which he lays.
Put these words upon his tomb,
"Taxes drove me to my doom!"
And when he's gone, we won't relax,
We'll still be after the inheritance TAX!

Author Unknown

~~~~~

Some people think the government owes them a living.
The rest of us would gladly settle for a small tax refund.

~~~~~

What's the definition of a good tax accountant?
Someone who has a loophole named after him.

~~~~~

Q: What do accountants suffer from that ordinary people don't?
A: Depreciation.

~~~~~

Whomever said that truth never hurts never had to fill out a Form 1040.

~~~~~

There are two types of people who complain about paying their income tax.
Men and women.

~~~~~

I hate junk mail . . .and that includes the tax forms they send me.

~~~~~

If Congress can pay farmers not to raise crops,
why can't we pay Congress not to raise taxes?

~~~~~

President Herbert Hoover was the first President to give his salary back to the government.
Now the government would like everyone to do it.

~~~~~

Q: What is the definition of Death?
A: When you stop paying taxes suddenly.

~~~~~

Q: Why is a tax loophole like a good parking spot?
A: As soon as you see one, it's gone.

~~~~~

The local bar was so sure that its bartender was the strongest man around that they offered a standing $1000 bet. The bartender would squeeze a lemon until all the juice ran into a glass, and hand the lemon to a patron. Anyone who could squeeze one more drop of juice out would win the money.
Many people had tried over time - weightlifters, strongmen, etc. - but no one could do it. One day a scrawny little man came into the bar wearing thick glasses and a polyester suit, and said in a tiny squeaky voice "I'd like to try the bet." After the laughter had died down, the bartender said OK, grabbed a lemon, and squeezed away. Then he handed the wrinkled remains of the rind to the little man.
But the crowd's laughter turned to total silence as the man clenched his fist around the lemon and six drops fell into the glass. As the crowd cheered, the bartender paid the $1000, and asked the little man, "What do you do for a living? Are you a lumberjack, a weightlifter, what?"
The man replied, "I'm an IRS Agent."

~~~~~

Income tax is Uncle Sam's version of "Truth or Consequences."

~~~~~

Doing your own income tax return is a lot like a do-it-yourself mugging.

~~~~~

There was a time when $1200 would buy a car.
Now it's the sales tax.

~~~~~

Drive carefully.
Uncle Sam needs every taxpayer he can get.

~~~~~

A dollar saved is bound to be taxed.
And so is a penny earned.

~~~~~

It's hard to believe America was founded to avoid high taxation.

~~~~~

After one pays their income tax,
one knows how a cow feels after she's been milked.

~~~~~

Income tax forms should be printed on Kleenex
because so many of us have to pay through the nose.

~~~~~

Bumper Sticker:
When you do a good deed, get a receipt in case Heaven is like the IRS.

~~~~~

Isn't it appropriate that the month when the taxes are due begins with April Fool's Day and ends with cries of "May Day!"?

~~~~~

Did you ever notice?
When you put the 2 words "The" and "IRS" together it spells: "THEIRS."

~~~~~

A man, called to testify at the IRS, asked his accountant for advice on what to wear. "Wear your shabbiest clothing. Let him think you are a pauper."
Then he asked his lawyer the same question, but got the opposite advice. "Do not let them intimidate you. Wear your most elegant suit and tie.
Confused, the man went to his rabbi, told him of the conflicting advice, and requested some resolution of the dilemma.
"Let me tell you a story," replied the rabbi. "A woman, about to be married, asked her mother what to wear on her wedding night. 'Wear a heavy, long, flannel nightgown that goes right up to your neck.' But when she asked her best friend, she got conflicting advice: 'Wear your most sexy negligee, with a V neck right down to your navel.
The man protested, "What does all this have to do with my problem with the IRS?"
"No matter what you wear, you are going to get screwed."

~~~~~

Q: Ever wonder why the IRS calls it Form 1040?
A: Because for every $50 that you earn, you get $10 and they get $40.

~~~~~

A political promise today means another tax tomorrow.

Even in space, there's no escape from taxes or census forms
Even Astronauts in Space Pay Taxes
Tariq Malik SPACE.com Managing Editor
space.com 1 hr 17 mins ago

CAPE CANAVERAL, Fla. - No one can escape taxes, not even astronauts flying in space.


Of the 13 astronauts flying on the linked shuttle Discovery and International Space Station, eight are Americans stuck in space as tax day arrives in the United States.


But they didn't launch into space unprepared. And unlike some Americans who avoid paying taxes, all these astronauts either paid their taxes early or filed for an extension. Some even took extra time to fill out their 2010 census forms.


"I did fill out my census form before we left, but I did have to file for an extension on my taxes," Discovery astronaut Stephanie Wilson told reporters this week.


Wilson and six other astronauts launched into space on Discovery on April 5. They arrived at the International Space Station two days later and have been delivering tons of new supplies, science equipment, spare parts and other gear ever since.


On Thursday, the shuttle astronauts will pack up the bus-sized cargo pod they hauled to the space station, use a robotic arm to pluck it from a docking berth on the outpost, then store the module in Discovery's payload bay for the trip home. The shuttle is due to land here in Florida early next week.


Discovery's pilot, U.S. Air Force Col. Jim "Mash" Dutton, is a rookie astronaut making his first spaceflight after a lifetime of dreaming for a chance to fly in space. But that dream didn't distract Dutton from the whims of the Tax Man.


"I filed in advance because I got a refund," Dutton told SPACE.com before flight.


Taxes and human spaceflight also have a long history. After all, Americans have been living in space continuously aboard the International Space Station since 2000. That's enough time for 10 tax days and two census polls.


"We've got folks on orbit 365 days a year, and we've had to deal with that a bit," explained Discovery commander Alan Poindexter, a U.S. Navy captain making his second spaceflight.


In fact, Poindexter and his crew are flying in space on the 40th anniversary of NASA's Apollo 13 moon mission -- a spaceflight that has the double distinction of being both a near-disaster and a stunning rescue. An oxygen tank exploded while Apollo 13 was en route to the moon, forcing its crew -- astronauts Jim Lovell, Fred Haise and Jack Swigert -- to abandon their mission as NASA engineers scrambled to find ways to keep them alive and return them home safely.
Apollo 13 did return home safely, a harrowing space journey that has been immortalized in books, television and on film. But at least one of them, Swigert, still had the tax man waiting.


Swigert was a late addition to the Apollo 13 crew and didn't expect to need an extension until he was assigned to the crew at the last minute. He was the backup crewmember for command module pilot Ken Mattingly, who was pulled from the Apollo 13 crew after being exposed to the German measles.


NASA doctors feared Mattingly would get sick during the flight, or worse -- infect the entire crew. Despite being grounded for Apollo 13, Mattingly never did get the measles.


But Swigert wasn't so lucky with his taxes. Mission Control broke out in laughter when he asked how to get an extension from space.


"How do I apply for an extension?" Swigert asked Mission Control when flight controllers asked the Apollo 13 astronauts if they'd done their taxes before launch. "Things happened real fast down there and I do need an extension."

http://news.yahoo.com/s/space/201004...5pbnNwYWNldA--

Five Lessons From Your '09 Tax Return
These Money-Making Tips Will Help you Analyze Last Year's Finances in Order to Lower Your Taxes in the Future
April 15, 2010

http://www.cbsnews.com/stories/2010/...n6398741.shtml

Your 2009 taxes are done. Congratulations! But you’re not done yet. (Sorry.) While you have all your 2009 tax forms and documents handy, this is the perfect time to analyze last year’s finances and use those insights to lower your taxes in 2010 and beyond.

The sooner you get started, the more you can save. So, take a big breath and then take these five steps:

1. Avoid a Big Tax Refund

You think you love getting a tax refund. What’s not to like about found money? But a refund is really just the return of a year-long, interest-free loan that you extended to your spendthrift Uncle Sam.

You can do much smarter things with that money, like putting it into a retirement plan or a college savings fund. So if you will be receiving a 2009 refund of more than a few thousand dollars and you’re an employee, adjust your withholding at work. If you’re self-employed, lower your quarterly estimated tax paymentsaccordingly.

If your 2010 income will be less than $75,000 ($150,000 if you’re married and will file jointly), be sure your tax withholding has been properly adjusted for the new Making Work Pay Tax Credityou’re entitled to receive this year. This credit (up to $400 for singles and $800 for couples) should be reflected in the amount of taxes taken out of your paycheck. But you may need to submit a revised W-4, especially if you’re holding down multiple jobs or you’re married, since your employer wouldn’t know about your extra work or your spouse’s income.

2. Save More in Your Retirement Plan

If you are not maxing out your employer-sponsored, tax-deferred retirement plan, you’re missing outon the single best opportunity to save on taxes.

I know that the idea of saving more may be difficult these days, as so many people are just getting back on their feet. But if you can squeeze just an extra 1 or 2 percent out of your paycheck and pour that cash into the plan, you’ll reduce your taxable income and your 2010 tax bill.

Doing so might also bring your income under certain thresholds that will let you qualify for bigger tax breaks you’d otherwise miss - such as personal exemptions, itemized deductions, an Individual Retirement Account, the Child Tax Credit, the Child and Dependent Care Credit, and the Hope and Lifetime Learning Credits for college.

Here’s an example, courtesy of Research401k.com: Say you’re a single person earning $50,000 and in the 25 percent tax bracket. Without making a 401(k) contribution, you might owe $12,500 in taxes this year. By contributing $4,000 to the plan, however, you’d lower your taxable income to $46,000 and might owe $11,500 in taxes. Essentially, the government lends you $1,000 to invest for your future and you don’t have to pay the loan back until you withdraw the money from the 401(k) in retirement.

3. Look into Muni Bonds and Funds

If you have money in interest-paying bank accounts, CDs, money market funds, or taxable bonds or bond funds, you could be adding to your tax liability. High-income taxpayers need to be especially concerned since their tax liability will rise as a result of the passage of health care reform.

You may want to consider moving some of those taxable savings and investments into tax-free municipal bond funds. I’m a fan of ones from Vanguard (VWITX), T. Rowe Price (PRTAX) and Fidelity (FLTMX).

After a stellar 2009, muni funds are not quite as good a deal as they were last year, compared with taxable investments. Still, if you are in a high tax bracket, muni funds could offer a better tax-exempt yield. To see how much more in your case, use this taxable-equivalent yield calculator. Just be aware that the sweet yields on munis come with some extra risk, since there’s always a possibility that a few bond issuers won’t make their payments. Historically, that risk is pretty slim, but it’s not zero.

4. Lower Your Mutual Fund Taxes

As the equity and fixed income markets recover from the financial meltdown, be on the lookout for mutual fund taxable distributions. A distribution is one of the most aggravating features of a managed mutual fund: You are on the hook for capital gains on the fund’s investments as well as the fund’s tax liability. You may even be taxed on gains the fund incurred before you owned it!

One way to limit the damage before you invest is to ask the fund company if it will be making a distribution soon. If the answer is “yes,” hold off buying until afterward.

Or you might invest in funds with low turnover ratios, such as index funds, since they’ll be less likely to throw off taxable distributions. A turnover ratio below 10 percent is generally tax-efficient. (A fund’s annual report will show its turnover rate.) Morningstar’s Fund Screener tool can help you find low-turnover stock funds.

One class of mutual funds, tax-managed funds, is all about keeping your tax liability down. These funds do so by keeping turnover low and avoiding dividend-paying stocks. Some tax-managed funds own stocks; some own stocks and bonds. Morningstar and Yahoo! Finance’s Mutual Funds Center can help you find them.

5. Keep Better Tax Records

Organizing your tax records might not only lower your tax liability, it could help you get rid of the tax-filing headache sooner. Create a file called “Taxes 2010” and throughout the year toss into it business receipts; bank, brokerage, and mutual fund statements; W-2s; 1099s; property tax bills; and mortgage interest statements. And keep track of your purchase price, commission, and sales price for any investment transactions in 2010.

You’ll thank yourself in April 2011.

Take advantage of Tax Day freebies
By Kay Bell · Bankrate.com
Thursday, April 15

Did filing your tax return leave a bad taste? Then check out the many national restaurant chains that are offering some much more appetizing goodies today in celebration of the end of our annual tax ritual.

P.F. Chang's customers will get 15 percent off dine-in or take-out food purchases. The discount does not apply, however, to Happy Hour items or alcoholic beverages.

McDonald's is offering a "Buy one, get one more for just 1 cent" on its Quarter Pounder with cheese and Big Mac sandwiches.

McCormick & Schmick's is cutting the prices of its usual $15 to $20 entrees to $10.40. To round out your meal, you can order tax-themed drinks, such as a pint of Samuel Adams Deduction Draft.

Cinnabon has temporarily rechristened its miniature cupcakes Tax Day Bites and will be handing out the snacks from 6 p.m. to 8 p.m. today at its 700 outlets.

T.G.I. Friday's will give customers $5 Bonus Bites gift cards for food and beverage purchases of $15 to $25 and $10 cards for those who spend more than $25.

Starbucks is giving away free brewed coffee all day April 15 to patrons who bring in their own travel mugs.

Dairy Queen will hand out free samples of its new Mini Blizzards from their Blizzardmobile from noon to 1 p.m. outside the main IRS office in Washington, D.C.

IHOP is commemorating the child tax credit by offering free meals for kids 12 years old and younger with each adult meal purchased from 4 p.m. to 10 p.m. each day throughout April.

It's not just big businesses that are tying their products to tax day. A furniture store here in Austin is advertising a tax break sale, a discount equal to the amount of sales tax on qualifying purchases.

And yes, a couple of business have actual tax filing promotions under way. You can make free copies of your tax returns at Staples and Office Max stores.

A marketing professor calls the April 15 specials a "masterful strategy" in these tough economic times. "They're trying to tie in their particular product or the function of their product with this day and they'll probably keep doing it because it produces a good result," says Bill Rice who teaches at Fresno State.

As with anything even tangentially connected with taxes, there are qualifiers. Note the special times for some of the offerings. And it's also a good idea to double-check the specials at your local franchise.

http://www.bankrate.com/financing/ta...-day-freebies/