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.

Source: Thinkstock

Source: Thinkstock

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.