This Idea is posted for those who need to catch tax cheats, because it is about a seemingly-very-easy tax cheat.
1. Go to any/many local outlets for lottery tickets. Very often when people find a ticket is a loser, it is thrown away. Scratch-off tickets are especially subject to being trashed at the place purchased; tickets that await a particular "drawing" event are more often thrown away at other places. (If you know where those are, you might want to include them in your site- visitings.)
2. Collect as many trashed tickets as you can. Let us suppose that you collect $10,000 worth of tickets (different tickets have different prices, remember).
3. You now need to be lucky. Let us suppose you win a $10,000 lottery prize after buying a not-from-trash ticket.
4. When doing your taxes, at least in the USA, the Internal Revenue Service conveniently allows you to take a tax deduction against your winnings equal to your losses. So, if you spent $10,000 on lottery tickets, AND HAVE SUPPORTING EVIDENCE FOR THAT, then you can subtract the amount you spent from the amount you won, and you only have to pay tax on the difference (unbalanced winnings, that is; there is no tax deduction for only losing money on gambling).
5. Logically, if you won $10,000, and have picked up $10,000 of losing tickets from the trash, then a simple lie ("I spent $10,000") can now be supported with all those very-real losing tickets in your collection. You therefore get to keep your actual winnings tax-free.
Note: It is possible that the Law is becoming a bit more strict about what counts as "supporting evidence". Recently one retailer gave me an actual cash-register receipt. Collecting those from the trash might be more trouble than it is worth....-- Vernon, Apr 22 2013 Apparently this has been tried already http://www.courierp...e?AID=2013304150021 [ytk, Apr 22 2013] You read that article too, huh?-- ytk, Apr 22 2013 Surely lottery winnings are tax-free?
[edit - apparently only in Europe]-- MaxwellBuchanan, Apr 22 2013 Hmm, I don't know about the States laws but winnings from betting or gambling for simple recreation or enjoyment and lotto winnings are exempt from tax in Canada.In fact, if an auditor wants to know why your bank statements show more savings than can be accounted for by your earnings you just need to tell them that your an avid back-room poker player.
I imagine that they'll be buttoning up that loophole soon as it becomes easy then to make money under-the-table while still appearing to be close to the poverty line which would save even more tax on the actual taxable earnings by being able to stay in the lowest tax bracket.-- 2 fries shy of a happy meal, Apr 22 2013 In the UK, lottery winnings aren't taxable. If I understand correctly, if you place a bet at a bookies, you can opt to either pay tax on the bet _or_ pay tax on the winnings.-- MaxwellBuchanan, Apr 22 2013 ^ haw, and if you can't figure out which is better you shouldn't be gambling.-- FlyingToaster, Apr 22 2013 In the U.S. gambling winnings are taxable as regular income, but they can be offset by gambling losses. So you can't deduct more in losses than you actually won in a year, but if you can show your net gambling profit was zero you will pay no taxes, hence the idea.
Though as I've said, this has already been tried, perhaps even successfully. My guess is you'd probably get away with it, as long as you don't try to get /too/ cute. The IRS would have to prove that you didn't actually buy the losing tickets, which is very hard to do since you're paying cash for them. That said, they can trace all of your bank transactions, and if they find you have a suspiciously high amount of cash gambling transactions (i.e. you only ever withdrew $5,000 in cash all year but claim to have spent $10,000 on the lottery) they may start asking where that undocumented cash income came from.-- ytk, Apr 22 2013 [ytk], as it happens, I had not read about this scam before thinking it up. I do agree, though, that it isn't obviously easy for tax cheaters who try this, to get caught. Fortunately(?), most people DON'T get lucky enough to be tempted to try this....-- Vernon, Apr 22 2013 The thing is, if I win $X on a lottery ticket, it sort of makes it a waste of time if I have to pick $X worth of used tickets out of rubbish bins. Even if you're in the top tax bracket (which is what in the US?), that makes every used $1 ticket worth only a few tens of cents.
If it takes you an average of 30 seconds to collect each used $1 ticket (allowing for the time taken to get to wherever you find them), that means your time is being reimbursed at way less than $30 per hour, which is a non-starter even if you have just won a big prize.
Who is going to bother doing that?-- MaxwellBuchanan, Apr 22 2013 //Even if you're in the top tax bracket (which is what in the US?)//
Depends on where you live, but it's roughly 50% between state and federal.
//Who is going to bother doing that?//
People will and have. Check out the article I linked (I read it about a week ago, so I thought maybe Vernon had seen the same article). The best place to get losing tickets is apparently at the racetrack. I've never been to one, but I would guess one could collect hundreds of high-value losing tickets in just a few minutes.
Heck, I'd do it if a) I played the lottery and b) I weren't scrupulously honest on my taxes.-- ytk, Apr 22 2013 random, halfbakery