Business Superbook Book 36. Underground Economy, Tax Avoidance, Business off the Books

The best government governs least.
Thomas Jefferson

Even though the chances are slim you will get caught if you run a cash business, the penalties for tax evasion in the United States can be severe.

In many countries, most businesses don’t bother to pay taxes.

In some countries, there is very little government paperwork needed to start a business like Cambodia.

We have been regulated and taxed to the point of slavery but the funny thing is that most of us take it like wimps.

The most common ways beyond a cash only business are:

Set up a limited liability company.

Set up two limited liability companies, one owned by the other to muddle up your tracks.

Set up two businesses, one legitimate, the other off the books. Use the one that doesn't make any or much money as the front so to speak through which you file an income tax return and have a bank account to process transactions (launder money from the other business).

Use the other business to earn money that you don't pay tax on and the first business as the one that keeps you legally covered like the mafia used to do.

An ideal situation is to do a subcontracting service for a larger company. They pay you and it's your responsibility to file your own taxes as an independent contractor. An example of an ideal situation is something like this.

Suppose company A's main business is to sell heating oil but in order to appear more amenable to the public, they offer a furnace repair service too even though they have nothing to do with it.

Every call they get for furnace repair, they give to their buddy who's got it made. He doesn't have to solicit business thus putting himself at risk for getting caught.

He just fixes the furnaces referred to him, the company collects the money and passes 90% onto him which he pockets and that's it. He doesn't even give off the perception that he's running his own furnace repair business.

Business off the Books 2

Government is legalized pillage.
Elbert Hubbard

Business owners choose to do business "off the books" for a variety of reasons, mostly to escape government regulations but many do it because they just do.

They can't be bothered with all the red tape one must go through in order to start any business, even the simplest business of selling vegetables out of a truck.

You're spozed to get a business license, subject your business to health and safety inspections if applicable, get a state and federal number in order to collect state sales tax, pay income tax plus withhold the tax of employees and make contributions to the federal Social Security System if you have people working for you.

Many people are simple in lifestyle or start simple businesses that are often part-time but the government rules technically apply regardless of how simple or part-time your business is such that it seems like the effort to comply to government regulations is more tedious than actually running the business itself.

Many people just say screw it. What the government doesn't know won't hurt them. As long as they're quiet, low key and don't p.o. too many people off such as nosey neighbors and unhappy customers, there is no reason why some government bureaucrat would discover they are running a business off the books then file some charge on them, usually a tax evasion charge or a violation of health or safety standards.

The major reasons people do business off the books are as follows:

Avoid paying income tax on money earned.

Avoid the paperwork and fees that go with licensing a business then paying into the several programs for employees; Social Security, worker's compensation, health insurance, etc.

Avoid the requirement for checking the identities of illegal immigrants who work for them.

Avoid the overall headache of allowing one's life to be regulated by the government and following its rules.