10 Bizarre Claims People Make to Avoid Paying Taxes

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Resistance to taxes is baked into Americans’ DNA. After all, it was cries of “taxation without representation” that spurred the American Revolution. Tax protests have continued on and off ever since, from the Whiskey Rebellion to Vietnam War-era tax resisters to the “sovereign citizen” movement.

People object to paying taxes for all kinds of reasons, from opposition to certain policies to not recognizing the government’s authority to collect taxes in the first place, but the IRS isn’t having it. No matter what you read on the internet or your weird Uncle Bob says, you can’t get out of paying taxes without suffering consequences.

“The IRS and the courts hear many outlandish arguments from people trying to avoid their legal filing and tax obligations,” IRS Commissioner John Koskinen said in a statement. “Taxpayers should avoid unscrupulous promoters of false tax-avoidance arguments because taxpayers end up paying what they owe plus potential penalties and interest mandated by law.”

Now, that doesn’t mean there aren’t things you can do to legally avoid taxes. Taking all your deductions or moving money into tax-sheltered accounts like a 401K are perfectly acceptable ways to lower your tax bill. It’s when you get into weirder tax avoidance strategies that you run into problems. (Note: Not paying your taxes can have serious implications for your credit. Check out our quick guide for keeping your taxes from messing with your credit. While you’re at it, you can also get your two free credit scores, updated every 14 days.)

Trying to claim that filing a tax return is optional, that you aren’t really a citizen of the U.S., or that only certain types of income are taxable will backfire. When you submit a frivolous return or slam the IRS with other off-the-wall requests the result may be a fine of $5,000 to $25,000. Plus, you could also be prosecuted for tax evasion, a felony punishable by prison time and penalties of up to $250,000.

The IRS spends a lot of time and energy debunking various convoluted anti-tax arguments, and it’s collected dozens of them in a document titled “The Truth About Frivolous Tax Arguments.”

Below, we’ve highlighted 10 of the more bizarre reasons why people say they shouldn’t have to pay taxes.

1. Filing a Return & Paying Taxes Is Voluntary

The first and perhaps most direct argument against the U.S. tax system is the idea that filing a return and paying taxes is voluntary. Primary points include court cases like Flora v. United States, in which the term “voluntary” is used to describe how the tax system is based on “voluntary assessment and payment, not upon distraint.”

But when the IRS says filing a return or paying taxes is “voluntary” what it really means is that a taxpayer has the right to determine his or her tax liability by completing the appropriate forms, as opposed to having the government complete the forms and determine the bill. It doesn’t mean you have the option to opt out of the system entirely.

2. The Money They Earned Isn’t Really Income

According to this anti-tax argument, the money you receive for working isn’t technically income. Rather, you’re engaged in an equal exchange of your labor for fair market wages, and thus there’s no “gain” to be taxed. In this view, the government only has the right to tax gains or profit, not wages.

In reality, the IRS is allowed to tax virtually all your income, whether it’s dividend income from stocks or wages you receive from your employer. Exceptions include gifts and inheritances (though large estates may have to pay an estate tax), child support, life insurance benefits, and welfare payments.

3. Taxes Are Against Their Religion

You may not believe in paying taxes, but the IRS isn’t buying it. Though churches and other religious institutions are exempt from taxes, the same does not apply to individual taxpayers.

Allowing people to opt out of taxes on religious grounds would cripple the tax system. In the United States v. Lee, the U.S. Supreme Court ruled that “[t]he tax system could not function if denominations were allowed to challenge the tax system because tax payments were spent in a manner that violates their religious belief.”

4. Paying Taxes Violates the Fifth Amendment

Some argue that including financial information on a return may bring unlawful or illegal activity to light, thereby forcing a taxpayer to forego their Fifth Amendment protections.

The IRS calls this a “blanket assertion” of constitutional privilege. The agency asserts that there are no constitutional grounds for the refusal to file a tax return based on the Fifth Amendment. In cases like the United States v. Sullivan and the United States v. Neff, the courts back the IRS’s position.

5. Paying Taxes Is a Form of Slavery

The U.S. has prohibited involuntary servitude (except as punishment for a crime) since 1865, when the 13th Amendment was ratified. Since then, some anti-tax protestors have tried to equate paying taxes to slavery, arguing that having to send some of their money to the IRS is a constitutional violation. Even prominent politicians have evoked this absurd anti-tax argument. “If we tax you at 50% you are half slave, half free,” Rand Paul said in 2015. But the IRS and the courts have declared the “taxes equals slavery” claim bogus.

On the flip side, arguments that African-Americans and Native Americans can claim a tax credit as reparations for slavery and other forms of oppression are invalid. While there have been serious arguments that the U.S. should pay reparations to the descendants of former slaves, the government has not taken any such action.

6. The 16th Amendment Doesn’t Count

The 16th Amendment to the Constitution is short and to the point: “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

Yet some tax protestors argue the 16th Amendment is invalid because it was not properly ratified or that Ohio was not properly a state at the time it voted for the amendment. (Ohio has been a state since 1803; the amendment was ratified in 1913.) “Proponents mistakenly believe that courts have refused to address this issue,” the IRS noted. “There were enough states ratifying the Sixteenth Amendment even without Ohio to complete the number needed for ratification. Furthermore, after the Sixteenth Amendment was ratified, the Supreme Court upheld the constitutionality of the income tax laws.”

7. Their State Isn’t Part of the United States

Among the goofier anti-tax arguments is the assertion that only people who live in the District of Columbia, in federal territories, or on Indian reservations or military bases have to pay federal income tax. Everyone else is supposedly a citizen of a “sovereign” state, not the U.S., which means they’re exempt from federal income tax. Not so, says the IRS.

“The Internal Revenue Code imposes a federal income tax upon all United States citizens and residents, not just those who reside in the District of Columbia, federal territories, and federal enclaves,” the IRS explained.

8. The IRS Is Secretly a Private Corporation

Some conspiracy theorists are convinced the IRS isn’t actually part of the federal government at all. Supposedly, it’s a private corporation masquerading as a government agency, and it actually has no authority to enforce the tax code. In the 2002 case Edwards v. Commissioner, the court dismissed the claim as “tax protestor gibberish.”

9. They’ve Rejected Their Citizenship

You can’t reject your U.S. citizenship or claim to be a “free born citizen” of a particular state in order to get out of paying taxes. “Claims that individuals are not citizens of the United States but are solely citizens of a sovereign state and not subject to federal taxation have been uniformly rejected by the courts,” according to the IRS.

Even if you were to formally renounce your U.S. citizenship (which involves appearing in person at a U.S. embassy or consulate in another country), you still may not be able to escape your tax bill. “Persons who wish to renounce U.S. citizenship should be aware of the fact that renunciation of U.S. citizenship may have no effect on their U.S. tax or military service obligations,” the State Department explained.

10. They Aren’t Technically a Person

In various court cases, this argument has been declared “meritless” and “frivolous and requir[ing] no discussion.” Here’s a tip: If the government is willing to consider a corporation a person, they’re definitely going to consider a person a person.

Erika Rawes contributed to this article.

This article originally appeared on The Cheat Sheet.

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Congratulations! You May Be Getting a Tax Break

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When tax season rolls around, most of us are just relieved to get our paperwork in on time. Now, according to Wolters Kluwer Tax & Accounting, a software solutions provider for tax, accounting and audit professionals, there may be even more reason to rest easy: A sweet little tax break.

According to the firm, since the late 1980s the U.S. Tax Code has required that federal income brackets be adjusted for inflation each year. These inflation adjustments were added to the Internal Revenue Code in recent years, and now over 50 other inflation-driven computations, as the firm describes them, are required to determine deduction, exemption and exclusion amounts, along with the 40 separate computations used to adjust the tax brackets for inflation each year.

Now, based on the Department of Labor’s inflation figures for the 12 months between August 31, 2015 and August 31, 2016, the firm is projecting that taxpayers will “experience modest savings” when filing their 2017 taxes compared to 2016. Here’s a closer look:

  • “A married company filing jointly with a total taxable income of $130,000 should pay less income taxes in 2017,” said the firm.
  • Marginal tax rates will have increased due to the income ranges bracketing, meaning “a single filer with taxable income of $50,000 should owe $22.50 less next year,” the firm concluded.
  • Meanwhile, “the additional standard deduction for those 65 years old and older, or who are blind, will remain at $1,250 for 2017, as will the $1,550 additional amount for single-aged-65-or-older filers,” the firm wrote.

Beyond that, the standard deduction for single, married filing jointly, and married filing separately filers is expected to jump in 2017 to $6,350, $12,700 and $6,350, respectively. That’s up from $6,300, $12,600 and $6,300. This change can bring about lower taxes, the firm explained, by “decreasing the taxpayer’s taxable income.”

According to Kelly Phillips Erb, a Philadelphia tax attorney who frequently blogs at Forbes, this is good news since “every time the bracket shifts even a little bit, all the taxpayers below that threshold benefit a little bit.” So with the standard deduction threshold rising, “the higher it is, the more people can claim it.” Two-thirds of taxpayers already take advantage of the standard deduction, she added.

Taxpayers should also consider how stagnant incomes — those that haven’t increased with inflation — can play a key role in their taxes this season. “If your income stays flat, which most people’s tend to do, but the tax breaks go up and the brackets shift up, you’ll get to trim off a few dollars from your taxes,” Erb said. Put another way, “you’re benefitting from the fact that the tax brackets are going up while your income is staying the same.”

As you gather your taxes together, it’s a good idea to spend some time researching some of the ways you can maximize your refund. You’ll also want to be wary of filing your taxes with accountants who aren’t on the up-and-up and, of course, to pay your taxes on time. Unpaid taxes can ultimately lead to a lien, which can hurt your credit. (You can view two of your credit scores, updated every 14 days, for free on Credit.com.)

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5 Ways Your Money Could Be Affected By a Ted Cruz Presidency

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We’re still a ways from knowing who will be the next President of the United States, but Sen. Ted Cruz (R-Texas) is among the top contenders. As such, you may want to know a little more about him and, specifically, how some of his policy proposals would affect your finances.

Whether Cruz or any other potential president will accomplish the goals outlined in their campaigns is a huge unknown; regardless, they’re helpful to review as the election gets underway. We’re putting together these summaries for all the frontrunners, and we’ve already published pieces on how a Donald Trump or Sen. Bernie Sanders presidency could affect your money. Here are some changes you might experience if Cruz wins on election day.

1. Health Care Reform

Cruz wants to repeal “every word of Obamacare,” according to his website. That would eliminate things like requirements that all Americans have health insurance (or face a penalty) and insurers cover people with pre-existing conditions (among many other things the law specifies). Depending on your personal insurance situation, that could help you save money or it could cost you more. It all really depends on how Cruz plans on enacting reforms to “make health care personal, portable, and affordable.” In short, a President Cruz would want to change the way we pay for health care.

2. A Smaller Government

Cruz proposes eliminating the Internal Revenue Service, the Department of Education, the Department of Energy, the Department of Commerce and the Department of Housing and Urban Development (HUD). He calls it his Five for Freedom plan.

If you rely on any of those departments for anything — say, you want to buy a home with an Federal Housing Administration loan, a program administered by HUD — a Cruz presidency could significantly disrupt your plans. That’s not to say he’ll get rid of everything these departments do (his website said his administration would determine if any programs need to remain intact), but it seems impossible that these departments could disappear without sending shockwaves through certain populations.

These departments do a lot of things that directly affect Americans’ finances. The Department of Education is a good example: What would happen to student loans and programs the department runs, like student loan forgiveness? Given how many people use federal student loans to pay for college and how much student loan debt Americans have ($1.3 trillion of mostly federal loans), that’s no small question. (You can see how your student loan debt may be affecting your credit by viewing your free credit report summary each month on Credit.com.)

3. A ‘More Stable Dollar’

Cruz has highlighted dollar instability as an economic woe for the U.S., saying that a highly valued dollar tends to lower prices and be good for the consumer, but that’s not good for manufacturers and exporters. A low dollar can result in the opposite, costing consumers but helping to grow the economy. He is proposing stabilizing the dollar by auditing the Federal Reserve.

“A rules-based monetary system would restore stability to the dollar and to the international currency system,” his website reads. “This will help us get beyond these cycles of boom, bust, and malaise, and return us to rising productivity, strong economic growth, and higher incomes for all.”

It’s hard to say how this proposal would affect your finances directly since stabilizing the dollar at high or low value will inherently be good for some and bad for others (and Cruz didn’t specify what he meant by “stable.”)

“The problem is there’s upsides and downsides to having a strong and weak dollar, and they both serve a purpose,” said Samuel Rines, an economist and portfolio manager with Chilton Capital in Houston. On top of that, the act of stabilizing currency is really complicated.

“Regardless of whether we wanted a stable currency, we would have to make a determination of how we would do that,” Rines said. It’s not just up to the United States. The economies of other countries affect the value of the dollar. “It would be really difficult to enact,” he said.

4. Lower Taxes

Cruz proposes a Simple Flat Tax. Instead of the seven existing tax brackets, everyone will pay a 10% income tax, but for a family of four, the first $36,000 will be tax-free. For tax year 2015, the lowest bracket starts at a 10% tax. Cruz says that tax change will increase wages by 12.2%. Note: With the proposed dissolution of the IRS, it’s unclear if you’ll have to file taxes to make sure you’re paying your required 10%. At any rate (pun intended), the way you pay taxes is likely to significantly change under a Cruz administration.

5. Job Creation

Cruz also claims that the Simple Flat Tax will create more than 4.8 million jobs. He’s also pitching approval of the Keystone Pipeline and similar projects that will expand oil, natural gas and ethanol operations, which he says will fuel job creation. So, if you’re among the 5.5% of unemployed Americans, that’s something to consider.

More Money-Saving Reads:

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4 Last-Minute Tax Moves You Can Make on Dec. 31

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Why hello there, Procrastinator. I know you’re busy wondering how 2015 got away from you, but here’s some good news: You still have time to make some tax moves to lower your bill before 2016. Want to do it? Of course you do. Here are some tips for those who thrive under pressure.

1. Clean Your Closet

If you itemize deductions, you might want to take some time to round up unused clothes and household items, and donate them before Dec. 31. “Take a picture of what you’re donating, make a complete list of items and value, and get a receipt,” said Gail Rosen, a certified public accountant based in Martinsville, N.J. Not only will this help you save on taxes, end-of-year non-cash donations can double as much-needed house cleaning. Cash donations and charitable donations share the same deadline, per the IRS.

2. Review Investments

You can sell losing stocks to offset capital gains, which is known as tax-loss harvesting. Read the ins and outs of that strategy here, but remember, if you’re considering tax-loss harvesting, be sure to think beyond the tax implications. “Don’t sell just for tax reasons,” Rosen warned. “It should make economic sense.”

3. Make Payments Early

You could make your January mortgage payment in December and have it count toward deductible interest for 2015. “Just keep in mind that if you do this in 2015, you have to do the same thing next year or you will only deduct 11 months of mortgage interest in 2016,” Rosen advised.

If you plan to pay tuition for courses in spring 2016, consider paying in December so you can deduct those qualified education expenses for 2015. Paying state taxes early could also improve your taxes. “If people itemize and their state has state income tax, they might consider making their fourth quarter estimated payment in December instead of January,” said Bob Wheeler, chief executive of RWW CPA in Los Angeles. Keep in mind the longer you wait to make payments, the more likely you are to miss the Dec. 31 cutoff.

4. Max Out Retirement Contributions

There are a lot of good things about saving for retirement, even in the short term. “I always suggest that you max out your retirement — it’s a great way to reduce your taxable income,” said Lisa Greene-Lewis, a CPA and tax expert with TurboTax. “When you max out your retirement, you may be eligible for the Savers Credit.” The Retirement Savings Contributions Credit, aka Savers Credit, gives a tax break to low- and moderate-income taxpayers based on income and retirement contributions. If you participate in a 401(k) through your employer, elect to make an employee deferral contribution by Dec. 31, though you can make qualified contributions until the tax-filing deadline. Contribution limits vary by type of retirement account and age.

You don’t have to wait until the last minute to do these things, however. Several CPAs we spoke with recommended reviewing taxes in October or November so there’s plenty of time to make adjustments and avoid any penalties. Tax preparation is really a year-long activity, and while that may not sound fun, it can make tax time less stressful.

More on Income Tax:

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