Tax Hacks 2012 – Profile of the American Tax Cheat

Photo (cc) by Infrogmation

Picture a person most likely to cheat on their taxes. If what you imagine is an older, rich businessman, you got it wrong. More than likely it’s an egotistical, big-spending single guy in his 40s living paycheck to paycheck.

According to the DDB Life Style Study conducted last year, those are the characteristics of the most likely tax cheater. The survey concluded there are no big income differences between cheaters and non-cheaters, with 42 percent of cheaters describing a paycheck-to-paycheck lifestyle, and 45 percent considering themselves spenders. Cheaters have a higher opinion of themselves than non-cheaters, the survey says – 46 percent think they’re “overall better than most people,” and 52 percent believe they’re “special and deserve to be treated that way.” They’re also far more likely to work under the table while claiming unemployment, lie and ask friends to lie for them, and even take money from their kids’ piggy banks.

Of course, tax cheating isn’t always the product of a character defect – sometimes it’s an honest mistake. In the video below, Money Talks News founder and CPA Stacy Johnson has more on tax cheaters, and talks to a few people who didn’t realize they might be cheating. Check it out, and then read on for more…

Are we a nation of cheaters?

According to the annual taxpayer attitude survey commissioned by the IRS, 84 percent of taxpayers believe you should never cheat, and only 8 percent say it’s acceptable to “cheat as much as possible.”

But apparently those who do cheat are going to town. The IRS computes what they call a tax gap estimate, which shows how much money should be coming in versus how much actually does. Estimates for 2006, the most recent year completed, show an increasing number: In 2001, the tax gap was a staggering $345 billion – in 2006, $450 billion.

While you might get away with failing to report yard-sale profits like Stacy mentioned in the video above, the IRS will notice if the income you fail to report is reported by someone else – like your employer. They also randomly pick people to audit every year, and the IRS is investigating and prosecuting more people now than they have in at least a decade.

That’s just one of several initiatives the IRS has begun to catch cheaters. A speech by IRS commissioner Doug Shulman given last year reveals an expanded “voluntary disclosure” program, where cheaters turn themselves in and pay penalties to skip jail – which often leads to investigations of related people, such as co-workers or professional tax preparers.

The IRS is also forcing professional tax preparers to register and take continuing education courses, and the agency is watching small businesses more carefully. From the speech: “Beginning in 2012, electronic payment processors, including credit and debit card processors, will also be required to make an annual information report to the merchant and the IRS stating the gross amount paid to the merchant during a calendar year.”

If you do get caught cheating, the penalties can be severe. As we mentioned in Tax Hacks 2012 – 6 Scams to Avoid, tax evasion can mean years in jail and a $250,000 fine on top of what you already owe. Many celebrities have found this out the hard way, including recently released “Survivor” winner Richard Hatch, who just lost a court plea to lower his tax payment and reportedly can’t afford an apartment.

So don’t take the risk. Get the help you need and pay your dues. If your income is under $50,000 a year or your age is over 60, you can get free tax help – check out Tax Hacks 2012: 4 Places for Free Help. If you’re filing yourself, don’t skip these 8 Easy-to-Miss Deductions.

What do you think?

Do you think too many Americans cheat on their taxes? Do you think the tax code is unfair? Sound off here or on our Facebook page!

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
16 Products That Coffee Drinkers Will Love
16 Products That Coffee Drinkers Will Love

We’ve brewed up a list of amazing Amazon products that are sure to perk you up.

10 Types of Retirement Income That Are Not Taxable
10 Types of Retirement Income That Are Not Taxable

There are lots of things Uncle Sam can’t touch — so long as you play by the rules.

5 Ways to Avoid Taxes on Social Security Income
5 Ways to Avoid Taxes on Social Security Income

Here’s how to minimize and delay the chunk that Uncle Sam claims.

13 Streaming TV Services That Cost $20 a Month — or Less
13 Streaming TV Services That Cost $20 a Month — or Less

Before shelling out for more expensive options, check out this diverse list.

7 Reasons You Should Consider a Career Change at 50
7 Reasons You Should Consider a Career Change at 50

Wondering how to change careers at 50, or if it’s possible at all? The good news is that many older workers have the energy and experience to pull it off.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

How to Buy Gas At Costco Without a Membership
How to Buy Gas At Costco Without a Membership

The warehouse club often has some of the cheapest gas in town. Here’s how you can get it as a nonmember.

10 Things to Stop Buying If You Want a Clutter-Free Home
10 Things to Stop Buying If You Want a Clutter-Free Home

If you like to keep things simple, avoid these purchases.

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

Vacuums from this brand can last a half-century, if not longer — and they’re hot on the resale market.

A Simple Way to Silence Robocalls Today
A Simple Way to Silence Robocalls Today

A few steps can keep your phone from ringing when a spammer calls.

This Company Makes the Best Tires in America
This Company Makes the Best Tires in America

Driver satisfaction with tires is at an all-time high, but one brand stands out.

Can I Switch to Spousal Social Security Benefits When My Ex Dies?
Can I Switch to Spousal Social Security Benefits When My Ex Dies?

Knowing when to claim can help you maximize benefits.

36 Things That Will Be Obsolete Soon
36 Things That Will Be Obsolete Soon

The writing is on the wall for dozens of things we have grown up with.

This Health Issue Can Hint at Dementia Years in Advance
This Health Issue Can Hint at Dementia Years in Advance

One type of pain is especially associated with cognitive decline.

8 Things You Should Always Buy on Amazon
8 Things You Should Always Buy on Amazon

The giant retailer shines when it comes to these things, from basics to hard-to-find specialty goods.

Medicare Will Not Cover These 6 Medical Costs
Medicare Will Not Cover These 6 Medical Costs

Don’t let these health care expenses catch you off guard in retirement.

8 Federal Income Tax Breaks for Homeowners
8 Federal Income Tax Breaks for Homeowners

Some of these deductions and credits are available to a wide swath of homeowners.

5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

5 Ways to Fill Your Pantry With Free Food
5 Ways to Fill Your Pantry With Free Food

Anyone can take advantage of these resources.

10 Deep Discounts Available on Amazon This Friday
10 Deep Discounts Available on Amazon This Friday

These items are steeply discounted — but the deals won’t last long.

6 Reasons You Should Stop Hiding Cash at Home
6 Reasons You Should Stop Hiding Cash at Home

Stashing money around the house is anything but harmless.

5 Products You Should Never Buy Generic
5 Products You Should Never Buy Generic

Sometimes the brand-name version is clearly superior.

9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.