I finished my tax returns for . I ended up owing no income tax, as I had planned, but $770 in additional self-employment tax. I’ve decided to stop paying my self-employment tax, although I’ll continue to file accurate 1040 forms each year showing how much the IRS thinks I should pay them.
This has been a difficult decision to make. I have been able to find no legal way of earning enough income to get by without owing self-employment tax (or its cousin FICA), so I’ve been left with the choice of paying that tax and learning to live with it, or resisting it illegally and accepting the consequences of taking that path.
I don’t expect that the consequences are going to be threatening or frightening, just annoying and frustrating. I figure the way this will probably play out is that the IRS will send me a series of letters that eventually climax in one that informs me that they’ve put a tap on my bank account and seized the money directly, probably with interest and penalties added.
That will be annoying, and may have consequences like bounced checks or difficulty in withdrawing money from an ATM when I need it or some red asterisk on my credit report or some such. That I can deal with. What I’d have a harder time accepting would be if the government ended up coming out ahead on the deal — if the interest and penalties were significant enough that I felt that my efforts had been counterproductive.
This is a lot of what led me to choose my legal method of income tax resistance in the first place — by never owing the money, I don’t run the risk of having to pay it involuntarily. Now I’m augmenting this with an illegal method of tax resistance that doesn’t have that same benefit.
I don’t think it is likely that the government will come out ahead if it decides to pursue my assets. First off, I don’t owe much — because my income is fairly modest, my self-employment tax is too. In a typical year, I’ll owe something like $3,000. This isn’t something the IRS is likely to bring out their big guns for (unless, I suppose, The Picket Line becomes suddenly influential and they feel like they need to make an example of me).
And there is friction in the machine, which is to say that for the IRS to start the process of seizing money costs them money. As I noted last month, the IRS is planning to outsource its simplest collection cases (a category into which my case may well fall) to private companies. To cover their costs and give them a profit motive, these companies will swallow about a quarter of what they collect. That gives some idea of how much the process is expected to cost — but the IRS will also rack up some additional expenses just getting to the point where they decide to turn a case over to these vultures.
I have some control over this — I can, if I choose, take additional steps to hide my assets and make it harder (and more expensive) for them to collect from me. I don’t know much about this sort of thing, or how difficult it will be. I may decide it’s not worth the bother.
This does blur the focus of The Picket Line somewhat. I’ve been able to give a good, simple soundbite about my tax resistance: “I’m avoiding paying any federal income tax, honestly and legally, by taking legitimate deductions and credits — and you can too!” Now I don’t have a sound-bite anymore. I have to explain that I’m resisting the income tax in a legal way, the self-employment tax illegally, (and then there’s excise taxes…). That’s harder to sell because it takes longer to explain and it’s easy to get into glazed-eyes territory, and it seems more frightening and sketchy to people who might be sympathetic with tax resistance but who get weak-kneed at the thought of getting a stern letter from an IRS computer.
I’ll try to keep good records and “do the math” so I can demonstrate whether or not this really is a practical method of keeping money out of the government’s hands.