Wanda is reviewing her tax returns from the previous year and is shocked at how much tax she paid the government. She had good income but had to pay a large number of self-employment taxes on top of her normal federal and state tax liabilities. She slumps back onto the sofa and tells Cosmo, "You know, Cosmo, some days I feel like I work for nothing. The government gets to keep more of my money than I do." He just wags his tail, thinking she is talking about how handsome he is.

Wanda can't get her tax bill off her mind and decides that she is going to handle this the way "rich people do" and start keeping two sets of books—one for her and one for the tax man. After all, since she is the sole proprietor, no one really has to know how much she really takes in from selling dog treats. She starts to plan how she is going to make this work, but as her plan comes together, she feels increasingly uncomfortable about her decision.

 

1. What are the legal and ethical consequences of Wanda keeping two sets of financial records and failing to report all of the income from Salty Pawz?
2. Even though Wanda is a sole proprietor, who else could be harmed by her actions?
3. Are there long-term problems she could be creating for herself that she doesn't see at this point? If so, what are they?

 

It is considered tax evasion if a person reports less than real income, fail to state cash income, and hide cash in foreign accounts. Tax evasion has legal consequences on a company as it can be accused of selfishness and greed. The main victim of Wanda's action is business because it faces unlimited individual liability for all debts acquired by the firm.

Step-by-step explanation

1. What are the legal and ethical consequences of Wanda keeping two sets of financial records and failing to report all of the income from Salty Pawz?

Wanda has developed a plan for producing two sets of financial records. Tax evasion has legal consequences on a company as it can be accused of selfishness and greed. As a result, its reputation is damage and public trust destroyed. On the other hand, it has ethical concerns as it's a duty for all to pay a fair amount of tax for social responsibility purposes. Funds from the tax will be used for public services like education, healthcare, and infrastructure which will eventually benefit Wanda firm. Tax evasion is seen as an unethical and immoral practice that weakens the integrity of the tax structure. 

1. Even though Wanda is a sole proprietor, who else could be harmed by her actions?

Sole proprietorship refers to a kind of unincorporated entity that's possessed by one person only. The main victim of Wanda's action is business because it faces unlimited individual liability for all debts acquired by the firm. Now if she cannot pay as the owner, creditors move to guarantors. Also, employees may be affected due to endless legal battles that can bring the business to a standstill. 

1. Are there long-term problems she could be creating for herself that she doesn't see at this point? If so, what are they?

According to the law, it is considered tax evasion if a person reports less than real income, fail to state cash income, hide cash in foreign accounts, and inappropriately claim tax deductions. In the future, the firm may be investigated by tax authorities and notified to report to CID or internal revenue service for suspected criminal behavior. Wanda's phone may be tapped to reveal money in other accounts. Lastly, charged for the crime of tax evasion and prosecuted. Wanda can be sentenced to a maximum of three years, pay a fine not exceeding $500,000, or both.