Reporting Drug Money on a 1040: 5 Weird Tax Laws
They reduce our take home pay and there’s really nothing we can do to completely avoid them — taxes are a burden that virtually all of us face. In efforts to reduce this burden, we may donate to certain charities, defer taxes on a retirement plan, buy a home in an area with lower taxes, or make other purchasing decisions with tax savings in mind.
Allowing for allowances, deductions, and credits, many portions of the tax code are laws you’d expect as they’re not only universal, they simply make sense. If a person has children, their expenses will of course be higher as they’ll be purchasing for another person throughout the year as well as themselves, so it’s reasonable to include deductions and credits for dependents.
On the other hand, some tax laws make very little sense and upon a review, seem incredibly bizarre. Using several IRS publications, along with a few other reports, we located a few laws that seem strange — almost to the point of unrealistic.
1. Criminals and Drug Dealers
According to an IRS publication, “income from illegal activities, 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.”
Whether or not a criminal decides to report his or her illegal activities is another story, but according to a CNN publication, some actually do. Criminals often report such activity when they’ve been caught during the year, or they anticipate being caught, the publication explains. Does reporting this income on a return incriminate these drug dealers and thieves? Do they deduct expenses and any losses as they would with a normal business?
While you probably can deduct the cost of your product from your revenue to determine profit, it’s unlikely that the IRS will accept business expenses like ski masks for thieves or a posse for drug dealers. Due to the IRS’ confidentiality laws, the IRS can’t just call the cops and say “hey, we know John Doe is stealing diamonds.” Unless a law-enforcement agency has a court order for John Doe’s return, then John’s return is kept private.
2. Swimming Anyone?
Installing an in ground pool can cost between $25,000 and $50,000. Then, you have the cost of adding in a fence, any landscaping, a concrete skirt around the pool, and pool cleaning equipment. The chemicals alone will run you around $500 to $800 per year.
Pools can definitely put a hurting on your wallet, but in some cases, you may just be able to get a break on your tax return. If your pool is used only for a medical purpose, and it’s not used recreationally, it may qualify as a medical, capital expenses.
This was the case for a taxpayer who’s doctor suggested a pool for health purposes. The man was said to have emphysema and the pool would improve his breathing. Tax courts ruled that he was permitted to deduct the cost portion of the pool that he didn’t recuperate through the increase in value to his property.
3. Tethered Balloon Tax in Kansas
Hot air balloon rides: they’re fun and exhilarating and you can see a different view of the world below you. Romantic for some and thrilling for others, hot air balloons are the oldest form of human-carrying flight technology.
With Rainbow Ryders reporting the cost of one of these rides at $150 to $200 per person (cost is around $100 for children) for a three or four hour experience, a family of four can pay upwards of $500 for a day out in the sky.
If a Kansas family enjoys one of these rides, amusement taxes don’t apply if they’re ride travels out into the free sky. However, if the balloon remains tethered to the ground, amusement, entertainment, and recreation taxes apply. Why? The federal Anti-Head Tax Act prohibits states and localities from imposing fees on airport and airline travelers. But tethered “passengers” don’t actually travel anywhere, so their rides can be subject to taxes.
4. Breast Implants
According to plasticsurgery.org, breast augmentation surgery comes with an average price tag of around $3,700. People opt to have breast augmentation surgery for all sorts of reasons. Many patients cite reasons like improved confidence, improved physical appearance, or even to appease a partner.
Another reason some women choose to get implants is a mastectomy. Since this is sometimes looked at as more of a medical treatment than a cosmetic treatment, the cost of implants after a mastectomy is generally tax deductible.
In some rare cases, you can even deduct breast implants as a business expense. This was the case for one stripper, who considered her breast implants a stage prop. She was able to deduct the expense, and account for depreciation just as she would for any other business expense.
5. Clown Costumes, Literally
Most jobs require you to look the part. Some jobs say you have to wear uniforms and most office jobs require business attire. Each year, businessmen and women can spend thousands on clothing and shoes. Although these clothes often come with a high cost, because you can wear suits to other events like nights out on the town, weddings, and other special occasions, you generally cannot deduct your work cloths as a business expense.
Clowns, however, wear bright, colorful, and baggy clothing. The big red shoes, red circular nose, and rainbow afro-wig is not the most versatile attire. While you can wear it to perform gigs, it’s probably not the best outfit to wear during off-work hours. The IRS knows this, and therefore it permits clowns to deduct their costume as a business expense.