Bribes, Theft, Freebies, and Other Taxes You Didn't Know You Owed

"Prohibition-era gangster Al Capone contended, 'The government can't collect legal taxes from illegal money,' but he was wrong and wound up with eight years in prison for tax evasion," reports MSN Money. As tax time comes back around, the IRS would like to remind you that ill-gotten gains are taxable:

Illegal income. Illegal income, such as money from dealing illegal drugs, must be included in your income on Form 1040, line 21, or on Schedule C or Schedule C-EZ (Form 1040) if from your self-employment activity.

Kickbacks. You must include kickbacks, side commissions, push money or similar payments you receive in your income on Form 1040, line 21, or on Schedule C or Schedule C-EZ (Form 1040), if from your self-employment activity.

Stolen property. If you steal property, you must report its fair market value in your income in the year you steal it unless, in the same year, you return it to its rightful owner.

Found property. If you find and keep property that does not belong to you that has been lost or abandoned (treasure-trove), it is taxable to you at its fair market value in the first year it is your undisputed possession.

Gambling winnings. You must include your gambling winnings on Form 1040, line 21. If you itemize your deductions on Schedule A (Form 1040), you can deduct gambling losses you had during the year, but only up to the amount of your winnings.

Read about other "other income" here.

Comments

[Lost_In_Translation]

good lord, talk about self incrimination

[Jane]

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Would edit lawpc hard disk capacity.
Others where matched exceeded. Challenges nanoscale parameter, variation leakage currents, result margins. Than execution units validity, may, was named. Reduces chance work due defect rises rising! Defect rises, rising discarded.
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Others, where matched exceeded.
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Ge, george edward creator paradox technical impact.
Mouse discuss projected size lecture doubling.

[Lamar]

Jane deserves a good punch in the dick.

Can't most of the stuff listed go unreported if you simply use cash? OK, you have to avoid buying crazy stuff you can't afford, unless you own a money laundromat. I wonder what the threshhold would be.

[Son of a!]

Does "Found Property" include the occasional penny I pick up off the ground?

I'd like to find a way to make things incredibly annoying for whoever has to handle my return, but I fear technology has reached the point where their discomfort at processing will always be below my discomfort in preparing.

[Ron Hardin]

No good deed etc. : if you return a large check to a large corporation because they've double-paid your invoice for services, both checks nevertheless wind up on your 1099.

[:-]

Don't forget to report the "income" from those gift cards you received last Christmas. Remember, it's "voluntary compliance."

[Evan!]

Problem is, I don't think Evan's House of Illicit Narcotics issues W-2 forms. Should I just staple my "receipts" for all my sales to my 1040? ;->

Fucking retards. "Hey, old pal, remember that income that we don't know about and have no practical way of finding out about? Send us income tax for that, mmmkay?"

[thoreau]

if you return a large check to a large corporation because they've double-paid your invoice for services, both checks nevertheless wind up on your 1099.

If the University cuts a check for the spring semester of your research fellowship in December, but nobody gives it to you until January, guess which year it counts as for tax purposes?

That's right.

[P Brooks]

But can I write off the bribes- er, "partnership distributions" I have been paying to the cops?

[highnumber]

Is Jane broken?

[JW]

Jane is doing her best imitiation of a Cylon hybrid.

[JW]

Dishonest (or at least illegal) in life, but honest (and legal) in taxation. Yeah. Sure. You betcha.

What the hell is in the water in that building? If nothing else, they'll catch dope peddlers who dip into their merchandise too often.

[NAL]

Not to change the subject, but (and now I'll proceed to change the subject) what is the general Hit & Run participant's feeling for the fairtax (see below and fairtax.org for more complete info)?

The Fairtax in a nutshell:
1) The 16th ammendment (allowing for the income tax) is repealed.
2) The IRS is abolished.
3) A federal sales tax of 30% is imposed on all retail goods and services. No exceptions. (Note: A 30% sales tax compares to a 23% income tax...the former is quoted on a tax-exclusive basis while the latter is on a tax-inclusive basis. If you buy something that costs $100, you'd be charged $130 with the new sales tax, equivalently, you could say you have to earn $130 to buy a $100 item...i.e. $30 is 23% of $130)
4) Every household receives a prebate (determined by the number of members of the household, etc.) each month as a way of exempting necessity spending. (This compares to the standard deductions and exemptions in the current tax code)

One great advantage of the fairtax is that it taxes illegal activity the same as it does legal activity (see, I brought it back on subject.). The illegal evil-doers have to buy things just like the rest of us.

[The Wine Commonsewer]

nah, gift cards aren't taxable income.

P Brooks, no, bribes aren't deductible. Unless you call it Outside Services.

[The Wine Commonsewer]

NAL I contend that the underground (untaxed) economy is necessary to the survival of the Republic. Besides, right now the undergrounders are only skating on income tax, they still are subject to local levies like state sales tax and property taxes.

[Ron Hardin]

Don't forget to report the "income" from those gift cards you received last Christmas. Remember, it's "voluntary compliance."

Gifts are taxed to the donor, not the recipient ; and only in excess of something like $11,000 to any one person.

[The Wine Commonsewer]

JW, years ago I had two different clients who were drug dealers. Both were more afraid of the IRS than they were of the cops or the rivals. One claimed to sleep with a loaded pistola under his pillow.

However, once they realized how much the social security and income taxes on self-employment income was, they both said screw it. See, in theory, all the ill gotten gains are taxable but there isn't any deduction for buying the drugs from the cartel. But even when we used that deduction, both called it a day and decided to take their chances. Lost track of one of them but the other is now a fine upstanding citizen with a real job, a wife, and a house in the suburbs.

[The Wine Commonsewer]

Hey Kath, thanks for the story and the link, I'm going to swipe it (with attribution of course). You saved me some effort, I guess I owe you a glass of Cabernet. Good Cabernet too, not that cheap stuff that NoStar swills. 🙂

[Larry A]

P Brooks, no, bribes aren't deductible.

They are, OTOH, taxible. The bribee has to pay income tax on what the briber can't legally deduct.

I wonder if prostitutes can claim depreciation?

[warmonger]

Evan said

Fucking retards. "Hey, old pal, remember that income that we don't know about and have no practical way of finding out about? Send us income tax for that, mmmkay?"

I think Al Capone thought the same way. If the Feds want you in jail, they will find a way.

[Toker]

thoreau, technically that check from the university isn't taxable income until the year you actually receive it (that doesn't mean you can just fail to cash it, since once you receive it it is income). however, that you received in Jan and not Dec will be tough to prove since the check will have a date of Jan.

[R C Dean]

Every household receives a prebate (determined by the number of members of the household, etc.) each month as a way of exempting necessity spending.

Me no likee. Too much like welfare. Why not just exempt necessities from the tax?

[JW (the original)]

The main objection I have to the "fair tax" or any other flat-rate tax is the fact that it is too damned easy for government to raise taxes by simply raising the percentage. Unless the percentage were enshrined in a Constitutional Amendment I certainly would not support it. I also suspect that such a tax would bring in even more money than what the present system does. Keep in mind that many people pay very little "income" tax, yet they still have to pay employment or social security taxes. And those come right off the top - no exemptions or deductions etc.

Personally I want government to collect as little tax as possible - fair or otherwise.

[Eric the .5b]

No disassemble Janebot!

[Toker]

JW,
I think a flat tax would be much harder to raise than the current system. Right now, the tax code is so complicated that it can be hard to figure out whether a specific change will be good or bad for you. Also, many changes only affect a small portion of people so the government can engage in a divide and conquer strategy. With a flat tax, any raise will affect every single taxpayer and the effect will be completely obvious. The political issue will be square- either you're for a tax increase or against it- and any increase will affect you, the voter.
I don't think a flat tax would last long though, as congress would quickly start enacting special exemptions, deductions, etc. that would benefit connected and popular groups.

[NAL]

R C Dean,
Exempting necessities from the fair tax just opens up loopholes for tax exempt status ("Buy this loaf of bread for $20,000 and receive a free car!" ...that's obviously an extreme example, but you can see the point). It also would require an agency analogous to the IRS to determine what is taxable.

JW,
My fault, I mistakenly implied that the fair tax would replace only the income tax. The fair tax not only abolishes the income tax, but it also abolishes all other forms of federal taxation (including payroll taxes). Under the fair tax, the only form of federal revenue would be from the national sales tax. It is meant to be revenue neutral to the current tax code.

My main reason for liking the fair tax is that it eliminates the intrusive nature of the IRS ( eliminating at least one wasteful government burocracy, the IRS, in the process). It also gives everyone a legal way to pay as little taxes as possible. I can earn as much money as I like and spend as little as I need to avoid taxation.

[bill]

Capone's screw up was that he kept records of all his illegal doings. Word of caution. DO NOT KEEP RECORDS OF YOUR DRUG DEALS!!!!!!!!!

[jb]

I thought the point of these rules was as a signalling device--it's easier to catch someone evading taxes than it is doing discreet illegal activity, so if you're Al Capone you can be busted without being caught red-handed.

As long as they don't actively enforce any of these, I'm cool with them.

[JW (the original)]

"I don't think a flat tax would last long though, as congress would quickly start enacting special exemptions, deductions, etc. that would benefit connected and popular groups."

Yeah, Toker, I definitely agree with you there. Just look at the so-called tax reform of the late 1980's - when Congress got rid of all the "loopholes", special deductions, etc. We are beginning to see alot of them again. It isn't the money brought in that government likes so well as it is the power that the tax code puts in its hands.

Speaking of cleaning up the tax code and simplifying things - no one has mentioned the Alternative Minimum Tax yet on this thread. If government can't ream you one way, it will find another. Nice!

[JW (the original)]

On the subject of finding other ways to rob people: Isn't it really special that what money government does not take through taxation gets its value diminished over time by expansion of the money and/or credit supply - that is to say, inflation?

[dave b.]

NAL

My main reason for liking the fair tax is that it eliminates the intrusive nature of the IRS ( eliminating at least one wasteful government burocracy, the IRS, in the process). It also gives everyone a legal way to pay as little taxes as possible. I can earn as much money as I like and spend as little as I need to avoid taxation.

And here's my question for the fairtax bunch: How do you deal with people who've saved as much as possible from rioting in the streets? My income has already been taxed from my employer, taxed by the state I reside in (well, not me b/c I live in TX, but you get the idea), and any additional taxes due on April 15. So, every year, let's (hypothetically) say that whatever is left over goes into my savings account. Let's also say that I've been doing this for a while, and I have amassed a nice sum. Now you're telling me that I have to pay an additional 30% on that? So, I already paid 28%-35% in federal taxes, 3-7% state taxes, taxes on any interest I have received, and whatever I have lost to inflation, and now I get to pony up 30% more? No thanks. Fairtax may work for people who are not subject to any form of taxation yet (your kids), but the day they come for an additional 30% is the day I move myself and my dollars to the Cayman islands.

[Ron Hardin]

You can't move the point of taxation later in the earn/spend cycle without taxing something twice. That (I hope, anyway) will kill the idea.

It's one of those invariants in mathematics that you can argue and presumably win eventually.

Another one is that the marriage penalty is a mathematical inevitable result of a progressive tax on income. Somebody will notice that someday, probably after they ``fix'' it.

[Kwix]

"Every household receives a prebate (determined by the number of members of the household, etc.) each month as a way of exempting necessity spending."

Me no likee. Too much like welfare. Why not just exempt necessities from the tax?

What qualifies as "necessities". For a city dweller, food is a necessity while for a rural dweller who grows his own food the fertilizer and pesticides are the necessity. If you decline to tax food, but continue to tax the agricultural precursors to food, then you are essentially giving the city dweller a tax break.

[Juanita]

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[Jane]

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[Jake Boone]

Jane/Juanita has always scared me a little bit, but now she scares me a lot.

[P Brooks]

Jane's reading Ulysses this semester.

[Robert]

If you have income from sources you think may be illegal, then you have good reason for filing 5th amendment returns.

[NAL]

dave b.,
That's a very good point that I hadn't thought of. One thing the fairtax.org website mentions is that because of all the "hidden" taxes in the U.S. economy, the prices of goods and services (including the new sales tax), will be about the same as they are now. I have no idea how they calculated that, but thought I'd pass it on.

Even if it's not true, though, if you're already a saver, imagine how much better your future savings will be when you're getting all of your earned income and still spending below your means. To illustrate, suppose you are currently paying 33% of your $100,000 yearly pay to the federal government (income tax + payroll taxes). Of the $67,000 that you get to keep, you're able to live on $50,000 and save the extra $17,000. Under the fairtax, you get all $100,000 and will need to spend 1.30 x $50,000 = $65,000 to live at the same standard of living. That leaves $35,000 that could be saved. A net gain of $18,000.

[Paul]

National sales tax fixes everything... everything.

[CWuestefeld]

So stolen good are taxable as income, but their value can't be deducted as an expense for the victim?

Isn't this a conflict of interesting, incenting the government to NOT protect our property?

It seems to me that since protecting our property is THE legitimate purpose of government, when they fail to protect us, this is the most compelling reason imaginable to withhold tax payments. So not only should losses due to theft count for us, but they should be counted as a direct credit rather than as a mere deduction from income.

[Robert]

"So stolen good are taxable as income, but their value can't be deducted as an expense for the victim?"

Yes, casualty loss.