If you travel internationally (meaning to another country), you're going to hear about duty-free shopping. An international cruise will likely have some duty-free shops right on-board. But if you look at the merchandise, you may not notice any steep discounts. So what gives?

Duty-free shops are not required to impose sales tax or other local taxes. Since U.S. stores slap sales tax on only once you get to the cashier, prices may look similar in duty-free shops compared to other stores. But the big difference occurs at check-out. If you figure average sales tax in the U.S. hovers around 8%, your duty-free purchase will be 8% lower than the same-priced item purchased Stateside.

Discounts are even steeper where there is a value-added tax (such as the European Union imposes) that is higher and built in to the regular price. If value-added tax is 18% and included in the price, then duty-free merchandise is going to be 18% cheaper.

You may also be able to avoid taxes in certain countries. Mexico is a great example. Buy your diamond earrings in Cozumel and you won't have to pay sales tax on them.

Now don't think Uncle Sam isn't aware of this. It's perfectly legal to do this, but customs sets limits on how much of that untaxed merchandise you can bring back to the U.S. If you go over that limit, you must declare it when returning to the U.S. and the nice people at customs may or may not impose duty on you. For instance, if you go over your limit (which is around $800 per person, last time we checked which was a while ago), you may get taxed a modest amount on the overage.

Now there is some leeway with customs officials, that is, at their discretion, they may let you scoot by without paying. Even if you do pay, the amount you'll be taxed is not much (less than sales tax in most places).

Which brings us to the customs form. If you're a U.S. citizen returning to the U.S., fill out your form honestly. Another part of the job of a customs officer is to check on people. It's discretionary, but if you're one of the ones picked, you better hope you declared what you're supposed to declare.