Income from whatever source derived

17 September 2013 / Uncategorized / Comments Off on Income from whatever source derived

Welcome to another edition of Tuesday Tidbits where we make tax and accounting simple. I'm your host Charles D. Shapero, CPA with Widget Bookkeeping and Tax, and today we're going to talk about income. What is income? Income is handled under the Internal Revenue Code under section 61, which simply states Income is from whatever source derived. Kinda confusing, but most of the Internal Revenue Code is. What that means is that whenever you are enriched, that's income. Here's some examples: Your W-2, your employer pays you for your hours that you worked that's income. Fairly obvious too. When you own a small business and you're doing services for people. They issue you 1099's, also pretty simple, pretty straightforward, let's talk about some items where income is not straightforward. How about bartering? I'm doing services for another business owner that is doing services for me, the services that I receive, the fair market value of those services, is reportable income to me under code section 61. I was enriched, so that kinda makes sense. What about if I buy a painting at a garage sale, and that painting has an evelope that has $5000 in it. Is that taxable income? Most of your probably said no but under code section 61 from whatever source derived. That $5000 needs to be reported on my tax return. Amazing isn't it? That is actually the Cessarini Case, it actually went to court, the IRS won. What about illegal activities? How about prostitution? What about drug dealing? Again, as silly as those examples sound, we go back to code section 61 from whatever source derived, so prostitution and drug dealing both taxable income under code section 61. That's how they got Al Capone he had all these illegal activities going on and he didn't report them on his tax return. That's tax evasion, Al Capone went to jail. Look at Wesley Snipes. Wesley Snipes didn't believe he needed to pay income tax on his income. He was jailed for it. Look at Richard Hatch. Richard Hatch won Survivor on national TV and didn't report the income on his tax return, and he went to jail. Code Section 61 very important, income from any source derived. That concludes today's Tuesday's Tidbits See you next Tuesday! Widget Bookkeeping and Tax, Know More Keep More