Video: Income Generated from an Illegal Activity

In this engaging lesson, Nick Palazzolo, CPA, dives into the intriguing and slightly humorous world of taxation concerning income from illegal activities. Yes, surprisingly, even income generated from less-than-legal endeavors is subject to Uncle Sam's reach. Nick breaks down the nuances of federal tax law, explaining that while the cost of goods sold may be deductible, other expenses, like the rent for a storage unit or employees' wages in an illegal operation, are not. Using practical examples, such as the operation of an illegal drug business, Nick clarifies which costs can actually reduce taxable income and which cannot, all the while drawing connections to historical figures like Al Capone to illustrate the long-standing application of these tax principles. It’s a unique look at tax law that's as informative as it is entertaining, shedding light on the mechanics behind taxing illegal profits and the reasoning of why certain deductions are allowed but others aren't.