Yeah. There is not some “magic number” like many urban myths hold where “if it’s less than $X you don’t have to report it!”
It doesn’t matter how you got the money generally, you found it, stole it, your gran other gave you $5, you won a guessing contest at school and were given a ruler or a candy, even trading something like trading someone a pikachu card for a Bulbasuar could have a tax implications because trades can be taxed at either the value of the goods or at the profit of the market value of what you traded vs. What you got back. It isn’t JUST sticks that are taxed this way. Of course you can also potentially write off loses on trades.
Where alot of these myths come from are:
1. Misinterpretation or extrapolation of tax code. For example many assume that because married couples file together and often share assets under law that any transfers or dealings between spouses wouldn’t be taxable. Or they misunderstand how certain exceptions like one time non taxable gifts between spouses work or gift exemptions and lifetime gift exemptions. So for example- at a federal or state level even an engagement ring could be something you need to pay taxes on!
2. The fact that usually it doesn’t matter. It isn’t that you don’t NEED to report these things, it is that they almost never matter in most real world scenarios unless they are quite valuable. The IRS makes you report things because outside certain specific transactions they don’t know what is going on. They have no way to know if someone gives you a gift or you trade them guy don’t the block you vintage Stratocaster for his hot tub etc. by law they are supposed to know. But… most of the time it doesn’t matter. Very few tax situations are such that a few $5 or $50 holiday gifts from granny are going to swing your taxes but much or anything at all. If you found $100 and it was unclaimed and became yours- that isn’t going to likely actually impact what you owe. A lot of these transactions could make some shift to your taxes but generally speaking most people don’t do enough to have to worry about it. Often even if you report something it is exempt- but they also generally
still want it reported. This is for a couple main reasons. The fisrst is so that if you are audited and made some mistakes it may not be exempt or may factor in to what you actually owe or are owed. The second is that there are long term tax implications. You can gift around $14k a year tax free in general terms, but there are also lifetime limits. How would they know you’d reached the lifetime limit if you never report because your gifts in a year for many years didn’t exceed the allowable amounts? Things like this are important. They can also make a differences later on if you amend your taxes at some point.
It is true however that the IRS does act in some ways to aid in prosecutions of crimes, so they like to have details.
The IRS generally doesn’t directly participate when it comes to small time crimes. They aren’t likely to go after a person who shoplifted $4000 or a small time local drug dealer that said, many large criminal organizations and prolific criminals have been caught or prosecuted thanks to the IRS. We all mostly know that Al Capone couldn’t be touched really, until he was busted on tax charges. RICO charges were basically invented as a way to deal with savvy organized criminals and be able to prosecute top level bosses who under traditional laws hadn’t commited any crimes or couldn’t be linked to any crimes if no one witnessed agaisnt them, or who’s only crimes were relatively minor charges. In essence RICO allows that in organized criminals conspiracy, all involved can be charged on the worst crimes done by any one of them.
RICO cases often involve all sorts of detailed and complex financial information in proving conspiracy and other aspects of the cases. So the IRS is often instrumental in finding or helping prosecute criminals. The IRS was able to bust a major international child sex ring because the website wasn’t paying its proper tax. They then used their legally empowered mandate to track down the proprietor and those profiting from the ring and passed on the information they found pertaining to child sex to other agencies. They formed a joint investigation and in the course of tracking down who owed money they uncovered s massive network and users and were able to help build a solid case. IRS records can also and have also been used to help prosecute other crimes by helping to reveal inconsistencies or inaccuracies etc. in testimony and such. So there is this sort of other aspect to it- even though the IRS doesn’t generally pursue non tax related crimes themselves and generally doesn’t bother to
Refer small time criminals to other organizations or suspicions of small time crime.
In plain terms- most of the time the IRS is unlikely to notice or pursue minor omissions from your taxes. Unless there is other cause for an audit or suspicion they are unlikely to ever look too closely at your taxes. So people routinely “get away” with tax code violations which tends to reinforce myths about taxes. It’s also a huge pain to report taxes “strictly by the book” for most people.
If you ever face a deep audit or if you omit something particularly high value or if you find yourself in a position to make powerful enemies with pressing desire to “get you” for soemtning- you might be in trouble- but most people can “slide” playing fairly loose with tax laws because it ultimately doesn’t make much difference or any.
It doesn’t matter how you got the money generally, you found it, stole it, your gran other gave you $5, you won a guessing contest at school and were given a ruler or a candy, even trading something like trading someone a pikachu card for a Bulbasuar could have a tax implications because trades can be taxed at either the value of the goods or at the profit of the market value of what you traded vs. What you got back. It isn’t JUST sticks that are taxed this way. Of course you can also potentially write off loses on trades.
Where alot of these myths come from are:
The IRS generally doesn’t directly participate when it comes to small time crimes. They aren’t likely to go after a person who shoplifted $4000 or a small time local drug dealer that said, many large criminal organizations and prolific criminals have been caught or prosecuted thanks to the IRS. We all mostly know that Al Capone couldn’t be touched really, until he was busted on tax charges. RICO charges were basically invented as a way to deal with savvy organized criminals and be able to prosecute top level bosses who under traditional laws hadn’t commited any crimes or couldn’t be linked to any crimes if no one witnessed agaisnt them, or who’s only crimes were relatively minor charges. In essence RICO allows that in organized criminals conspiracy, all involved can be charged on the worst crimes done by any one of them.
In plain terms- most of the time the IRS is unlikely to notice or pursue minor omissions from your taxes. Unless there is other cause for an audit or suspicion they are unlikely to ever look too closely at your taxes. So people routinely “get away” with tax code violations which tends to reinforce myths about taxes. It’s also a huge pain to report taxes “strictly by the book” for most people.
If you ever face a deep audit or if you omit something particularly high value or if you find yourself in a position to make powerful enemies with pressing desire to “get you” for soemtning- you might be in trouble- but most people can “slide” playing fairly loose with tax laws because it ultimately doesn’t make much difference or any.