There was a recent post on lesswrong, which also got highlighted on AC10, that struck my interest. It claimed that he had been avoiding taxes for 20 years through "one simple trick:" filing, but not actually paying them. The idea is that the IRS is so small and incompetent that they basically won't do anything against this sort of passive resistance.
Is this too good to be true? I'm not any sort of "effective altruist," I just don't want to pay taxes. And as it happens, I have a lot of capital gains income this year. According to the rules, I'm supposed to write the IRS a big check by Jan 15 for "estimated taxes." I can afford it, but it would make my life better to keep that money for myself. Can I just... not...? This feels like a real Matrix, red pill moment-
"You're telling me that I can dodge taxes?" "No. I'm telling you that when the time comes- you won't have to."
Then again... I really, really don't want to go to prison. even just getting my passport suspended would be a major hassle. And the guy who wrote that post seems like a real hippy... no bank account and no salary income??? how does he live?
Perhaps it would be better to set up a shady small business and claim all sorts of vague tax deductions. Thoughts on this?
btw: long time lurker, first time poster. I'm asking here because you seem like people who are smart, outside-the-box, and not simps for the government.
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Notes -
One one hand, it is true that the IRS cannot and does not audit everyone, or send all delinquent accounts to some form of collections. It is also true that they are disinterested in de minimis settlements from judgment-proof citizens, i.e. they're not coming after you for a $5 error (though they might send a letter about it!).
On the other hand, it is also true that there are things you can do that their computer systems will now notice more or less automatically, which will substantially increase your risk of an audit and/or collection activity. People can, and do, get hit with wage garnishment and even jail time for unpaid accounts.
I have never been able to think of a good moral argument for income or capital gains taxes; sales taxes possibly, certain limited property taxes maybe, but income and capital gains taxes are just straight theft. So please don't imagine I have any sympathy for the IRS when I say: just pay the IRS what you owe under the law as written. Unless you are at least a centi-millionaire for whom the cost of legal defense is arguably less than the possible savings, there are very few situations where I can imagine the risk outweighing the reward.
Now you might say--"but I don't know what I owe, because 'estimated taxes' are bullshit!" I sympathize, I really, really do. The fact that a single windfall can result in a year or more of the IRS asking you to pre-pay your taxes based on unrealized income you can't possibly predict is incredibly abusive. But so long as you pay a plausibly good faith estimate, you will have done something defensible. And also remember that the IRS doesn't (usually?) escalate to "jail time"--the first thing they do is demand their protection money, and the second thing they do is add penalties on top of that. So if you underpay your estimated taxes, there's a chance they'll hit you with a penalty for it.
Setting up a shady small business and taking deductions can indeed reduce your apparent tax burden, but it also exponentially increases your chances of an audit (and the penalties you will incur in the process).
Good luck!
Yeah... I guess that's what I'm coming around to. I could probably get away with it if it was for a very small amount, but for larger amounts their software will probably catch it and it's not that hard for them to just seize my bank accounts or whatever.
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