Throughout this course, many discussion opportunities come up where you need to

Question

Throughout this course, many discussion opportunities come up where you need to respond to other people's opinions and comments. Respond to your Discussion topic after you have completed your Reading.

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.

Topics

Discussion

Discussion

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.

1.                   Keeping a log of business expenses

2.                   Ignoring earnings from a lawn mowing business

3.                   Not reporting interest earned on a savings account

4.                   Keeping a log of contributions to a charity

5.                   Not reporting tips

6.                   Claiming your dependents as tax deductions

Thanks in advance

Explanation / Answer

1.

These actions are necessary to identify the expenses and it is very important to ascertain the profit earned by business. It comes under tax avoidance. It is also purely ethical and comes under the right of every tax payer.

2

It is a case of tax evasion as not showing the earning can help business owner to save some taxes. It is also unethical and breach of trust granted to the business by the tax collection agencies.

3

It is a case of tax evasion as earned interest can also attract the tax if it is taxable by the tax payment guidelines. It is unethical practice towards the disclosure of earnings.

4.

It falls under the category of tax avoidance as payment in charity can save some tax. Again, it is only possible when it is properly recorded. It is purely ethical to keep track of such contributions.

5

Receiving of tips increases the income and tax payment is to be done. None reporting of the same will come under tax evasion and it is unethical in nature.

6

If such claims are accepted then it should be done and it comes under tax avoidance. It is also an ethical practice.

Actions taken by the taxpayers in the light of taxation guidelines decide whether it is ethical or unethical. If it fulfills the requirement of regulatory bodies and complies with the norms then it is fully ethical otherwise it is considered to be unethical. Employing unethical practices will attract penalty also.

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