Determination of Tax
The United States income tax system is based on the idea of voluntary compliance; it is the taxpayer’s responsibility to report all income. Tax evasion is illegal. Some people try to evade paying taxes by failing to report all or some of their income.
Moneymaking activities that are not reported to the government are part of an underground economy. If taxpayers fail to pay what officials say they owe, the IRS can collect back taxes and assess a penalty.
Tax avoidance is perfectly legal. The IRS allows taxpayers to claim certain deductions, credits, and adjustments to income. For instance, some homeowners can claim a deduction for interest they pay on a home mortgage. Many people pay more federal income tax than necessary because they misunderstand tax laws and fail to keep good records.
Discuss whether or not the below listed actions are tax avoidance or tax evasion. Then, discuss the ethical implications of employing each of these in a tax return.
- Keeping a log of business expenses
- Ignoring earnings from a lawn mowing business
- Not reporting interest earned on a savings account
- Keeping a log of contributions to a charity
- Not reporting tips
- Claiming your dependents as tax deductions