Tax Evasion at the Top of the Income Distribution: Theory and Evidence (2021) [pdf](nber.org)
nber.org
Tax Evasion at the Top of the Income Distribution: Theory and Evidence (2021) [pdf]
https://www.nber.org/system/files/working_papers/w28542/w28542.pdf
109 comments
It’s not a very fair system if only certain participants can afford to avoid taxes. If these schemes were doable for most folks and not only the very rich then no one would have an issue with the system (assuming that it provided enough revenue).
This is why we should just tax the land - ya can't hide land.
Pretty easy for the 0.1% to avoid owning much domestic land though, unless their wealth comes mainly from real estate or primary resource extraction...
So what? If they own property that doesn't have anything to do with the country, it doesn't need maintaining roads and infrastructure (which is the tax is for in theory).
Real estate property based taxation has a long history of supporters as the most fair tax there is.
Real estate property based taxation has a long history of supporters as the most fair tax there is.
I feel the argument has gone cirular. People earn an income and keep wealth. The remark was made that those can be hidden, and the rich are good at that. Someone proposes that land be taxed: "ya can't hide land". But no, that won't work, because people can get foreign land. Oh, but that's okay because foreign land doesn't consume local resources like roads and infrastructure. So ... it's okay to hide your income into foreign land. Wait, what were we talking about?
Wat? Only a small portion of services are related to land. Property tax is in fact usually considered quite regressive and hardly "the most fair tax there is."
LVT is the optimal tax (no deadweight loss). Property tax has issues because it taxes improvements, but we probably want improvements.
Both of them are very unpopular with the people who have to pay them, because they force you to find productivity increases and you might be a retiree. Or just a landlord who refuses to develop an empty lot in the middle of a city.
Both of them are very unpopular with the people who have to pay them, because they force you to find productivity increases and you might be a retiree. Or just a landlord who refuses to develop an empty lot in the middle of a city.
The two biggest expenses, territorial defense and domestic infrastructure, are directly related to land. The other two big ones, administration of justice (courts) and protection of international commerce (navy) either are closely enough connected to land property or have their own revenue generation mechanisms.
What about land that’s owned by a trust in another country? Land is extremely easy and reliable way to hide money, that’s why wealthy Chinese are so well known for buying up property in the US and Canada.
The land records are held by a local authority who charges a taxes on the land. If the taxes aren't being paid, the land is sold at auction, and the new owner is responsible for the back taxes. Even if you don't always know exactly who is behind a given trust, you can always collect the taxes or reclaim the land. The wealth may be hidden from the Chinese government, and the local authority may not be certain who the owner actually is, but tax evasion is avoided.
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If it were that easy they'd do it.
You make more money with a bunch of nickle and dime taxes. 20% to the feds, 10% to the state. 5% sales, 1% property, a litany of $10-1000 fees for interacting with government, etc, etc than you do with a single big tax that is easy to rally against even if the nickle and dime solution is lossy.
You make more money with a bunch of nickle and dime taxes. 20% to the feds, 10% to the state. 5% sales, 1% property, a litany of $10-1000 fees for interacting with government, etc, etc than you do with a single big tax that is easy to rally against even if the nickle and dime solution is lossy.
You make the most revenue with a giant VAT like Europe has. After that it's income/payroll tax probably.
In that case wouldn't these companies go remote and keep just a PO box around?
Then they'll be taxed where they end up but ultimately they'll stay because of the services and talent attracted to the services that tax revenue affords.
Does that incentivize not buying land? I wonder if people will just prefer subscribing to everything with a long term bundle. I mean, rent and rent-like situations
Only the big, powerful, faceless individuals — corporations — will own land.
Is this plausible? I’m just winging it here :)
Only the big, powerful, faceless individuals — corporations — will own land.
Is this plausible? I’m just winging it here :)
It's the opposite; it increases the percentage of owner occupiers. It reduces landlord/renters; see for example https://gameofrent.com/content/can-lvt-be-passed-on-to-tenan... or https://www.prosper.org.au/wp-content/uploads/2020/10/Prospe...
Most proposals for land value tax are also revenue neutral, so you essentially pay rent to society/government for the land you use, but keep more of your income.
Most proposals for land value tax are also revenue neutral, so you essentially pay rent to society/government for the land you use, but keep more of your income.
In fact, the people who avoid the most tax (as a fraction of their income) are the bottom earners.
The higher-end schemes have allegedly become so opaque, obscure, and fast-evolving that much of what goes on is only arguably legal rather than proven legal. This gray area has spawned the term "tax avoision".
Personally I have seen some tax codes that were written to make using offshore companies mostly unpractical / illegal, but when an offshore lawyer explained to me the loophole and I reread it multiple times, it became clear that it was explicitly written to look like a nice anti-offshore law, but contain loopholes that are clearly legal, just makes using them more expensive.
I'm not saying it's nice / fair, but this is reality. It's similar to putting a buffer overflow bug in a C/C++ code on purpuse, but hiding it in a nice function.
I'm not saying it's nice / fair, but this is reality. It's similar to putting a buffer overflow bug in a C/C++ code on purpuse, but hiding it in a nice function.
A big part of the problem with eliminating tax avoidance is that many businesses would actually leave the jurisdiction if it was the only way to avoid paying high taxes, and governments know this, so they structure the tax code to be able to tax businesses that are hard to offshore while giving breaks to the ones that could benefit from leaving if the alternative was paying billions more in taxes.
But nobody wants to see a big explicit carve out like that because of the obvious unfairness (it's a huge advantage to multinationals over smaller companies), so they try to make it less obvious.
The best way to prevent this is to use taxes that can't be avoided through transfer pricing, e.g. VAT. The company can move their headquarters wherever they like; the tax is paid to the jurisdiction where their customers are.
But the other dirty little secret is that this would have to be government revenue neutral (just an increase in fairness), because if it actually increased the amount of taxes being paid on net then consumer prices would go up or retirement accounts would go down or both, because the money has to come from somewhere. So doing the thing that increases fairness has to be done without help from the people who want government to spend more money or you'll be impacting ordinary people who won't like it.
But nobody wants to see a big explicit carve out like that because of the obvious unfairness (it's a huge advantage to multinationals over smaller companies), so they try to make it less obvious.
The best way to prevent this is to use taxes that can't be avoided through transfer pricing, e.g. VAT. The company can move their headquarters wherever they like; the tax is paid to the jurisdiction where their customers are.
But the other dirty little secret is that this would have to be government revenue neutral (just an increase in fairness), because if it actually increased the amount of taxes being paid on net then consumer prices would go up or retirement accounts would go down or both, because the money has to come from somewhere. So doing the thing that increases fairness has to be done without help from the people who want government to spend more money or you'll be impacting ordinary people who won't like it.
> arguably legal rather than proven
In general, it's probably better if things have to be proven illegal. I'd rather that my life wasn't limited to only doing those things which have been pre-approved. If there's a problem with something, then it should be explicitly prohibited; not the other way around.
In general, it's probably better if things have to be proven illegal. I'd rather that my life wasn't limited to only doing those things which have been pre-approved. If there's a problem with something, then it should be explicitly prohibited; not the other way around.
> I'd rather that my life wasn't limited to only doing those things which have been pre-approved.
Gray area means that small loopholes in legal language don't instantly balloon into carte-blanche to commit all kinds of crime, without them all it takes is a clever reading of the law to break its spirit.
Practically, this means the government cannot regulate complex industries and situations. Things like "food safety" which are the bedrock of all modern countries are usually not possible without these sorts of gray areas.
Gray area means that small loopholes in legal language don't instantly balloon into carte-blanche to commit all kinds of crime, without them all it takes is a clever reading of the law to break its spirit.
Practically, this means the government cannot regulate complex industries and situations. Things like "food safety" which are the bedrock of all modern countries are usually not possible without these sorts of gray areas.
The government left in the loopholes, they can close them.
"The solution is to write bug free code"
No, the solution is to fix the bugs that are found.
There's no guarantee that this fixes the problem.
Imagine that I'm trying to disallow a particular type of fraud that's difficult to define. I might spend years or decades trying to write down the perfect law of what some unethical finance people shouldn't do all while they get away with a thousand variations of the "I know it when I see it" crime.
Implied by this, we have to choose between:
1. Very frequently updated laws everywhere (multiple orders of magnitude faster than today)
2. Criminals get away with crimes that could totally be prevented with "gray area" laws.
(1) does not seem compatible with democracy and (2) is not politically viable in any country. Things like food safety scares require immediate and effective action by government or bedlam follows.
Imagine that I'm trying to disallow a particular type of fraud that's difficult to define. I might spend years or decades trying to write down the perfect law of what some unethical finance people shouldn't do all while they get away with a thousand variations of the "I know it when I see it" crime.
Implied by this, we have to choose between:
1. Very frequently updated laws everywhere (multiple orders of magnitude faster than today)
2. Criminals get away with crimes that could totally be prevented with "gray area" laws.
(1) does not seem compatible with democracy and (2) is not politically viable in any country. Things like food safety scares require immediate and effective action by government or bedlam follows.
> Very frequently updated laws everywhere (multiple orders of magnitude faster than today)
This generally works by giving a government agency the ability to frequently redefine the placeholders in the laws
> does not seem compatible with democracy
Democracy is inherently a poor choice whenever expertise is needed. It's better to let experts do their thing and then hold them accountable for the results.
This generally works by giving a government agency the ability to frequently redefine the placeholders in the laws
> does not seem compatible with democracy
Democracy is inherently a poor choice whenever expertise is needed. It's better to let experts do their thing and then hold them accountable for the results.
We generally agree except that:
1. Agencies necessarily have limited scope and tools available.
2. In practice, not all complex topics can be handed wholly to agencies in a democratic system, inevitably people and legislators want a say on some of the bigger issues (housing, healthcare, etc.)
It's worth noting that agencies today are heavy users of gray area laws and still often find themselves overburdened with policy decisions. Iterated gamesmanship can only make that load heavier.
1. Agencies necessarily have limited scope and tools available.
2. In practice, not all complex topics can be handed wholly to agencies in a democratic system, inevitably people and legislators want a say on some of the bigger issues (housing, healthcare, etc.)
It's worth noting that agencies today are heavy users of gray area laws and still often find themselves overburdened with policy decisions. Iterated gamesmanship can only make that load heavier.
You're right, that was very unforgiving of me, and not the best interpretation of what you said.
To continue this analogy, I think the problems are, the process to fixing it is arduous and difficult, as much as writing it to begin with, bugs become expected behavior and have to continue being supported, and the "business case" executives have too much say in writing it.
To continue this analogy, I think the problems are, the process to fixing it is arduous and difficult, as much as writing it to begin with, bugs become expected behavior and have to continue being supported, and the "business case" executives have too much say in writing it.
And to further continue the analogy, the problems would be avoided if the (tax) code was simpler.
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> Most people want to follow the law, they just want to optimize taxes.
How does the average person avail these optimisation schemes? Do they also get to lobby for the loopholes?
How does the average person avail these optimisation schemes? Do they also get to lobby for the loopholes?
> How does the average person avail these optimisation schemes?
The Wall Street Journal often runs articles on various aspects of the tax laws, like how to do a Roth IRA conversion. I'm sure there are plenty of books on the topic, too, just check Amazon.
The Wall Street Journal often runs articles on various aspects of the tax laws, like how to do a Roth IRA conversion. I'm sure there are plenty of books on the topic, too, just check Amazon.
There are plenty of tax optimization scheme available to the average person. Find a good accountant who can help.
None of them are easy and usually require taking on financial risk, but they are there if you want them.
None of them are easy and usually require taking on financial risk, but they are there if you want them.
Can you share some? I've spent a lot of time looking into this, reading and posting on boggleheads, talking with accountants, advice only financial advisors, etc. and the general consensus is that there isn't much you can do as a high W2 earner besides pay your taxes and be grateful to be in such a position.
If you define "average person" as W2 income only, then yeah, there aren't many. If you're married and your spouse can put enough time in to be a "qualified participant", you can you offset W2 income with rental losses (including depreciation).
But for the "average person", you're looking more at investment opportunities - real estate using a 1031 exchange, investing in Opportunity Zones, etc.
You may not be able to avoid taxes on W2 income, but you might be able to shift around when that income is recognized and reduce your overall tax rate.
But for the "average person", you're looking more at investment opportunities - real estate using a 1031 exchange, investing in Opportunity Zones, etc.
You may not be able to avoid taxes on W2 income, but you might be able to shift around when that income is recognized and reduce your overall tax rate.
Poking around online it looks like over 90% of the country is filing only W2 income so that feels like a fair classification for "average person".
I've gone pretty deep on the real estate research front. We have short term rentals but (fortunately) they do well enough that we can't show paper losses even with depreciation. We're both well employed so real estate professional status is off the table (which is why we started with short term rentals - schedule C vs. E)
1031s and opportunity zones don't do anything to change when your W2 income is recognized or reduce your overall tax rate, the only tax benefits are around the capital gains with the property. Both require upfront investments with post tax money.
It just feels a little disingenuous to say there are "plenty of tax optimization schemes for the average person" because showing paper losses on real estate with one spouse getting real estate professional status, is the only strategy I've seen consistently mentioned.
I've gone pretty deep on the real estate research front. We have short term rentals but (fortunately) they do well enough that we can't show paper losses even with depreciation. We're both well employed so real estate professional status is off the table (which is why we started with short term rentals - schedule C vs. E)
1031s and opportunity zones don't do anything to change when your W2 income is recognized or reduce your overall tax rate, the only tax benefits are around the capital gains with the property. Both require upfront investments with post tax money.
It just feels a little disingenuous to say there are "plenty of tax optimization schemes for the average person" because showing paper losses on real estate with one spouse getting real estate professional status, is the only strategy I've seen consistently mentioned.
Only 10% have other income than W2?
That doesnt reflect IRS data.
Just capital/gains losses is 20%, then self-employment income is another 20%, real estate or S-corp is another 10%, etc
Sure there is overlap, but it’s not 100% across all those. And its not like if youre not taking advantage of those things now you cant in the future.
https://www.irs.gov/pub/irs-soi/22inweek47.xls
That doesnt reflect IRS data.
Just capital/gains losses is 20%, then self-employment income is another 20%, real estate or S-corp is another 10%, etc
Sure there is overlap, but it’s not 100% across all those. And its not like if youre not taking advantage of those things now you cant in the future.
https://www.irs.gov/pub/irs-soi/22inweek47.xls
Thanks for posting the raw data, it's super interesting and I wasn't able to find it on my own.
I think we are mostly in alignment, I have just been focused on "how to lower taxes on W2 income" where your point is that anyone can diversify their income streams and find opportunities with lower tax rates.
Anyway, I appreciate the info you shared. Cheers.
I think we are mostly in alignment, I have just been focused on "how to lower taxes on W2 income" where your point is that anyone can diversify their income streams and find opportunities with lower tax rates.
Anyway, I appreciate the info you shared. Cheers.
Learn languages (Duolingo), change countries depending on your income type, ask ChatGPT, set up companies for yourself. There are lots of ways to do it, and many average people are doing it already in different ways.
For example for me just moving to Switzerland made both my tax percentage lower and more legal, salary much higher, and cleaner streets from those lower taxes than anywhere else I lived before. Somehow the government was able to afford professional cleaning machines from those lower taxes.
For example for me just moving to Switzerland made both my tax percentage lower and more legal, salary much higher, and cleaner streets from those lower taxes than anywhere else I lived before. Somehow the government was able to afford professional cleaning machines from those lower taxes.
Its interesting that you put so much value on clean streets? My observation is that in many European countries its very uncool to throw trash on the floor outside. People still do it, but its usually done hidden. Also people take offense when they see someone throwing trash on the street.
what works in tiny countries does not work in large countries
I’m not sure you understood my point. Moving continents isn’t an average person solution. In fact it exposes another problem - companies can easily register anywhere and restructure their finances for lower taxes.
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Every time I read something about tax evasion I wonder why there’s never a discussion about IF income tax should “exist” or not.
We take it as granted and always existed.
While for indirect taxation I think that’s pretty fair.
Indirect taxation is regressive with lower income people paying a larger share of their income in tax.
At what level should we expect "finDox'ing" vs "personal privacy"?
i.e. ; Should we expect full transparency of billionaires, but not minimum wage workers?
US Tax Code is horrific, and corrupt.
But, what do?
i.e. ; Should we expect full transparency of billionaires, but not minimum wage workers?
US Tax Code is horrific, and corrupt.
But, what do?
It's regulatory/legislative capture by the very rich of the US gov.
Change the political operating system from the top. It cannot be reformed from within. The perpetual failures of campaign finance reform proves this. The only path forward is nonviolent mass mobilization. Never give in to learned helplessness.
Change the political operating system from the top. It cannot be reformed from within. The perpetual failures of campaign finance reform proves this. The only path forward is nonviolent mass mobilization. Never give in to learned helplessness.
> It's regulatory/legislative capture by the very rich of the US gov.
I'm not sure how the recent Washington State capital gains tax is the result of capture by the very rich.
I'm not sure how the recent Washington State capital gains tax is the result of capture by the very rich.
Simple. The Washington State Senate is currently led by the Democratic Party. But back in 2017 it was Republican-led: https://www.seattletimes.com/seattle-news/politics/bill-proh...
How about full transparency for companies? Companies are not people. The only way billionaires are able to evade taxes is through complex networks of companies.
My suggestion has always been, companies may not own companies. Only a real, live human being may own a portion of a company.
Combine this with public records of company officers and large shareholders. Problem solved.
Combine this with public records of company officers and large shareholders. Problem solved.
> companies may not own companies. Only a real, live human being may own a portion of a company
Wall Street would love this. No bargaining advantage for retail investors via funds. Every need for liquidity and rebalancing requiring a cascade of trades. And the introduction of a chops-like system to enable M&A.
Wall Street would love this. No bargaining advantage for retail investors via funds. Every need for liquidity and rebalancing requiring a cascade of trades. And the introduction of a chops-like system to enable M&A.
TBH, I am equally worried about the other side of the tax party. How my tax funds are spent and how efficiently they are allocated.
Do you have information that it's not spent effectively?
$20,000 for a plastic sink:
https://www.seattletimes.com/seattle-news/homeless/seattle-s...
https://www.seattletimes.com/seattle-news/homeless/seattle-s...
It's not just glaring stuff like this. We should measure government productivity/$ and amount of waste we have. Our nation would be like 3000% better if Gov was run at the efficiency of a SV startup.
Source: I am a Gov employee.
Source: I am a Gov employee.
The interesting thing is nobody is held to account for how the sinks cost so much. It's just "eh". Seattle has done other things like buying port-a-potties for $250,000 each, and spending $12 million to paint bike stripes on a mile of street.
Simply nobody cares about it.
Simply nobody cares about it.
No one is actually accountable for it. Those are slightly different things
If that 12M$ paint job had been accessible via an easy-to-use city web UI, probably some political gadfly would have spotted it at an early enough stage ?
Then you would complain about the cost of that system. Besides what do you want people to do? Vote republican so they can give farmers subsidies and buy two billion dollar bombers which of course you'll say "it's different"
Where did this rant come from ? I'm just suggesting that every polity has gadflies, and if you give them the tools, they'll dig around and find stuff.
The journalists often investigate government waste but the Republicans made everyone mistrust them and you went along with it
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How do you know these were a waste of money?
Because when my house was built I know what the port-a-potty on site cost.
How do you know that's too much money?
Call your local hardware store and ask them how much a utility sink costs.
If you had read your own link you would have learned much more goes into the cost than just purchasing a sink. Why are you pretending like the city is just getting gouged on the hardware part?
This kinda of overly simplistic analysis and invalid comparisons is what republicans like you use to manipulate people and gain power
The DOD can’t account for 60% of its spend and keeps failing audit.
https://www.npr.org/2021/05/19/997961646/the-pentagon-has-ne...
https://www.npr.org/2021/05/19/997961646/the-pentagon-has-ne...
Well there's the entire prison industrial complex that punishes rather than rehabilitates and doesn't address the issues driving crime or recidivism.
And all of that goes completely counter to the science of learning how to learn, so what if we start with that?
And all of that goes completely counter to the science of learning how to learn, so what if we start with that?
Oh come on.
So many people rushing to defend the government.
It’s not enough that they tax your income, but they tax every dollar you spend, then they tax the assets. Then if you sell those assets the same dollar is taxed a fourth time.
It’s theft, no different than being a medieval serf. I bet serfs had lots of good arguments why the king needed to steal the products of their labor too.
It’s not enough that they tax your income, but they tax every dollar you spend, then they tax the assets. Then if you sell those assets the same dollar is taxed a fourth time.
It’s theft, no different than being a medieval serf. I bet serfs had lots of good arguments why the king needed to steal the products of their labor too.
Enforcement
That only fixes things in a perverse "work to rule strike" sort of way.
Stripping down seemingly disparate problems down to their bone will often reveal the wisdom behind certain 'rules of thumb':
Blaming emergent patterns on the behavior of individuals never works. We know that shaming people into avoiding sugar doesn't decrease obesity, and shaming tax evaders won't stop tax evasion. Emergent behaviors are downstream of the systems that enable them. The humans within it are no more than blind chickens following the smell of food. Civic duty can serve as a counter-flywheel levee for a bit, but give it sufficient time and it's simply a matter of when the levee breaks. sorry
At the risk of sounding like a naïve libertarian: Have a small set of tall walls. Enforce those ruthlessly. Once inside, don't sweat the details. This doesn't low taxation or removal of all nuance. It means more streamlined collection. The budget can encode all the nuance afterwards. That way, each group that avails a 'tax break', has a clear $ value associated with it in the budget, instead of an unobservable 'opportunity cost' for money that was never collected in the first place.
Having said that, it is naïvely libertarian, because exposing the true subsidies that certain protected groups get in the form of a $-value, immediately makes it politically unattainable due to voter dynamics. Democracy is truly "the worst form of government" – except for all the others that have been tried .
More rules disproportionately benefit those with the resources to navigate said rules.
Blaming emergent patterns on the behavior of individuals never works. We know that shaming people into avoiding sugar doesn't decrease obesity, and shaming tax evaders won't stop tax evasion. Emergent behaviors are downstream of the systems that enable them. The humans within it are no more than blind chickens following the smell of food. Civic duty can serve as a counter-flywheel levee for a bit, but give it sufficient time and it's simply a matter of when the levee breaks. sorry
At the risk of sounding like a naïve libertarian: Have a small set of tall walls. Enforce those ruthlessly. Once inside, don't sweat the details. This doesn't low taxation or removal of all nuance. It means more streamlined collection. The budget can encode all the nuance afterwards. That way, each group that avails a 'tax break', has a clear $ value associated with it in the budget, instead of an unobservable 'opportunity cost' for money that was never collected in the first place.
Having said that, it is naïvely libertarian, because exposing the true subsidies that certain protected groups get in the form of a $-value, immediately makes it politically unattainable due to voter dynamics. Democracy is truly "the worst form of government" – except for all the others that have been tried .
Focusing on taxing the highly paid instead of taxing the wealthy is tiresome.
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What you need is a bookkeeper and/or a CPA, and probably some business/tax advice from a professional (ie attorney, CPA, etc) - probably not a loan.
[deleting my comment as not relevant]
This is exactly why you need a tax professional. You're linking to an article that is related to whether or not you can "write off" bad/uncollectible debt; it's not relevant. The first sentence most likely "disqualifies" you from the article's contents entirely -- you're probably not a small business that is using accrual-basis accounting, it sounds like you may not even have an entity at all (which is fine).
You need a tax professional (or even a semi-pro); in the interim, I'd suggest solely relying on what you read on the IRS website.
Generally speaking, by default you are likely cash-basis -- but yeah, this income & especially with "high variance", get with a professional. If nothing else, figure out whether you actually need a loan or not before applying/asking for one...
IANAL/IANA-tax-pro -- but you almost surely do not need a loan.
You need a tax professional (or even a semi-pro); in the interim, I'd suggest solely relying on what you read on the IRS website.
Generally speaking, by default you are likely cash-basis -- but yeah, this income & especially with "high variance", get with a professional. If nothing else, figure out whether you actually need a loan or not before applying/asking for one...
IANAL/IANA-tax-pro -- but you almost surely do not need a loan.
Your country doesn't allow you to file taxes on a "cash collected" basis rather than an "invoiced but not collected" basis?
[deleting my comment as it is not relevant.]
I don't know about the USA, but in some countries you can claim a "reserve" for accrued but unpaid amounts in some circumstances. Worth talking to an accountant to see if that's a thing in your case. (Note, there's also "reserve for doubtful accounts", which is if you're not sure if you're going to end up getting paid. It sounds like that one wouldn't apply; I mention it just to be clear that I'm not talking about that sort of reserve.)
There is no situation in America where you need to pay tax on a general invoice within two weeks of receiving payment.
That's not true. Self employed individuals may need to make an quarterly estimated tax payment if the payee does not withhold on the payment.
A payment recieved at the end of a quarter would be included in the ETP due 2 weeks later.
A payment recieved at the end of a quarter would be included in the ETP due 2 weeks later.
Why are you paying taxes on a 1.5m invoice?
Generally in the US individuals are taxed on income when actually received.
Generally in the US individuals are taxed on income when actually received.
You are able to choose this when your company first starts filing a tax return. You can report on an accrual or cash basis.
I think that if the OP were an accrual basis taxpayer they would already know how to handle this situation, since accrual-basis accounting is opt-in for individuals and S-corporations.
Note to other reply: estimated tax payments are made during the year. While you can net out expenses, if income is distributed unequally during the year this can result in penalties/interest if you underpay in one quarter based on the liability as calculated after the year ends (to complicate things, there are multiple ways to estimate tax payments during the year to account for these situations).
Note to other reply: estimated tax payments are made during the year. While you can net out expenses, if income is distributed unequally during the year this can result in penalties/interest if you underpay in one quarter based on the liability as calculated after the year ends (to complicate things, there are multiple ways to estimate tax payments during the year to account for these situations).
What on earth are you doing that has you invoicing a single 1.5m invoice?
Probably tax fraud as they deleted all their comments...
Just because somebody keeps his money offshore and hides it from his government, doesn't necessary mean that it's illegal (Google and co are great examples of not hiding).
Most people want to follow the law, they just want to optimize taxes.