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> IRS gets the vast majority of business taxes paid (no way to under-report taxable income) I guess we should dispel this one if it's really why people think f

> IRS gets the vast majority of business taxes paid (no way to under-report taxable income) I guess we should dispel this one if it's really why people think financial mass surveillance is a good thing. Cash is not even close to the only way for someone inclined to do it to under-report taxable income. Business income is revenue minus expenses. Anything that lowers revenue or increases expenses reduces taxable income. Businesses can deduct things that are personal rather than business expenses, overpay for deductible expenses to anyone giving a kickback under the table, sell at a discount to anyone giving a kickback under the table, do barter transactions and then deduct the traded merchandise as shrinkage, etc. Most businesses legitimately have single-digit profit margins, which doesn't take much to zero it out. Then if they get caught they go to jail, which is the same thing that happens if they get caught not reporting cash sales. And we haven't even scratched the surface of what large businesses do to avoid taxes. Spoiler: It's the same overall thing -- reduce revenue or increase deductible expenses -- but they generally have better lawyers and rarely go to jail even when they get caught.

dangus 2y ago
You haven't dispelled this at all. You literally can't reduce revenue on paper when your business revenue is credit card payments. The payments get reported directly to the IRS by the card processor. You can so much more easily fudge numbers if you take in primarily cash. In both cash and credit scenarios the business owner can increase on-paper expenses to lower tax burden, but there's only so much you can do with that without doing things like spending money on unnecessary costs or risking obvious audit discrepancies. If you take cash you can just lie and know that if you ever get audited there is no paper trail apart from the one you have created for yourself. The guy running the cash bar down the street can buy half his liquor from Costco with cash that he never reports receiving, and just pretends like half the bar's sales don't exist. That person would then only report the revenue to the portion of drink sales that go to a legitimate distributor. In this scenario both the distributor and the bar's receipts all line up and look legit, so the IRS would literally have to come down to the bar and count customers to prove anything was amiss. We can call this "financial mass surveillance" to make it sound bad and scary, but what's more scary to me as an average taxpayer is businesses evading taxes so that all the things I depend on like Medicare and Social Security get underfunded. As a W2 individual, I have no way to avoid taxes in a similar way.
- AnthonyMouse 2y ago
  > You literally can't reduce revenue on paper when your business revenue is credit card payments. The payments get reported directly to the IRS by the card processor. The revenue isn't on the credit card. Example: You go to the mechanic to have your brake master cylinder replaced. The part is $100 so they charge you $100 for the part and the credit card company says they have $100 in revenue, which gets deducted because they paid it to the parts company. But what you've actually given them is $100 and your old master cylinder, which can be rebuilt and put into another car and is worth $50. So they've reported $100 in revenue for the part, deducted the labor it took to rebuild the old part in addition to replacing yours (which also negates their profit on the labor), and now they have no profit on the books and a $50 profit off the books in the form of a serviceable part. Example: Someone frequents a local restaurant, eats there every day, doesn't pay for it. The restaurant is making a tax loss on this, incurring deductible expenses with no reported revenue. But the person eating the food is the landlord for the restaurant owner's personal apartment and is giving a discount on the rent. > If you take cash you can just lie and know that if you ever get audited there is no paper trail apart from the one you have created for yourself. This is also a myth. When you take payment in cash, the buyer gets a receipt. All the IRS has to do is go to your establishment, make an anonymous cash purchase to get a receipt (or get one from any other buyer(s)) and then when they audit you the revenue from that transaction had better be in your records or you're caught. > all the things I depend on like Medicare and Social Security get underfunded Note that corporate income taxes don't actually fund Medicare and Social Security at all. Both programs are funded by separate taxes that apply only to wages -- and have an income cap. It's one of the dumbest things in the tax system, but as it stands there is no money going from ordinary net profit-based income taxes to either of those programs regardless of what kind of payment system is in use. > As a W2 individual, I have no way to avoid taxes in a similar way. It's not because you file a W2, it's because you're not committing tax fraud. W2 workers who commit tax fraud will e.g. have the company expense a personal laptop and then bring it home without reporting it as income. I would hazard a guess that the majority of W2 workers have at various points used company equipment for personal use without declaring the value as income, and in the more brazen instances of this it makes up the majority of their de facto compensation. But some of those people also get caught, just like some of the people who don't report payments made in cash.

dangus 2y ago

You haven't dispelled this at all. You literally can't reduce revenue on paper when your business revenue is credit card payments. The payments get reported directly to the IRS by the card processor. You can so much more easily fudge numbers if you take in primarily cash. In both cash and credit scenarios the business owner can increase on-paper expenses to lower tax burden, but there's only so much you can do with that without doing things like spending money on unnecessary costs or risking obvious audit discrepancies. If you take cash you can just lie and know that if you ever get audited there is no paper trail apart from the one you have created for yourself. The guy running the cash bar down the street can buy half his liquor from Costco with cash that he never reports receiving, and just pretends like half the bar's sales don't exist. That person would then only report the revenue to the portion of drink sales that go to a legitimate distributor. In this scenario both the distributor and the bar's receipts all line up and look legit, so the IRS would literally have to come down to the bar and count customers to prove anything was amiss. We can call this "financial mass surveillance" to make it sound bad and scary, but what's more scary to me as an average taxpayer is businesses evading taxes so that all the things I depend on like Medicare and Social Security get underfunded. As a W2 individual, I have no way to avoid taxes in a similar way.

AnthonyMouse 2y ago
> You literally can't reduce revenue on paper when your business revenue is credit card payments. The payments get reported directly to the IRS by the card processor. The revenue isn't on the credit card. Example: You go to the mechanic to have your brake master cylinder replaced. The part is $100 so they charge you $100 for the part and the credit card company says they have $100 in revenue, which gets deducted because they paid it to the parts company. But what you've actually given them is $100 and your old master cylinder, which can be rebuilt and put into another car and is worth $50. So they've reported $100 in revenue for the part, deducted the labor it took to rebuild the old part in addition to replacing yours (which also negates their profit on the labor), and now they have no profit on the books and a $50 profit off the books in the form of a serviceable part. Example: Someone frequents a local restaurant, eats there every day, doesn't pay for it. The restaurant is making a tax loss on this, incurring deductible expenses with no reported revenue. But the person eating the food is the landlord for the restaurant owner's personal apartment and is giving a discount on the rent. > If you take cash you can just lie and know that if you ever get audited there is no paper trail apart from the one you have created for yourself. This is also a myth. When you take payment in cash, the buyer gets a receipt. All the IRS has to do is go to your establishment, make an anonymous cash purchase to get a receipt (or get one from any other buyer(s)) and then when they audit you the revenue from that transaction had better be in your records or you're caught. > all the things I depend on like Medicare and Social Security get underfunded Note that corporate income taxes don't actually fund Medicare and Social Security at all. Both programs are funded by separate taxes that apply only to wages -- and have an income cap. It's one of the dumbest things in the tax system, but as it stands there is no money going from ordinary net profit-based income taxes to either of those programs regardless of what kind of payment system is in use. > As a W2 individual, I have no way to avoid taxes in a similar way. It's not because you file a W2, it's because you're not committing tax fraud. W2 workers who commit tax fraud will e.g. have the company expense a personal laptop and then bring it home without reporting it as income. I would hazard a guess that the majority of W2 workers have at various points used company equipment for personal use without declaring the value as income, and in the more brazen instances of this it makes up the majority of their de facto compensation. But some of those people also get caught, just like some of the people who don't report payments made in cash.