People who benefitted financially from stealing, bribes, kickbacks, illegal activities, gambling or the discovery of a treasure trove this year will still have to pay taxes on those earnings.
Per the U.S. Internal Revenue Service Publication 17 material regarding the 2021 tax year, all of these are considered “other income” sources. Taxpayers are required to declare this income on the Schedule I Form 1040 under Section 8.
“If you steal property, you must report its fair market value in your income in the year you steal it unless you return it to its rightful owner in the same year,” said the most recent IRS materials.
The same goes for bribes, gambling winnings, illegal activities such as drug dealing, kickbacks, side commissions and push money. Property someone keeps that does not belong to them, such as abandoned treasure, must also be declared at fair market value the first year it is in someone’s possession.
While this requirement recently lit up social media, it has existed for quite some time.
According to Tax Foundation, a Washington D.C.-based think tank, “since the Constitution protects individuals from incriminating themselves,” people can pay taxes on illegal gains. Florida mobster Santo Trafficante is one example of someone who regularly paid taxes on illegal income, said the think tank. Chicago mobster Al Capone, on the other hand, was sent to prison for tax evasion.
Police in Erie County, N.Y. recently offered to help car thieves with their tax forms. Although the fifth amendment protects individuals from incriminating themselves, the U.S. Supreme Court has allowed police to use deception to obtain a confession, according to the American Psychological Association.
For those who haven’t been engaging in illegal activities or discovering lost treasures, there are a few other taxable sources of income that may come as a surprise: free tours, prizes and awards. Any free tours from travel agencies, prize winnings from T.V. and radio and other winnings must be included at their fair market value as income on tax forms.
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