Sunday, October 31, 2010

Welcome (Back) to the Underground Economy

I’m Wenchypoo, and I’ll be your tour guide. Please hold onto the handrail as we make our way into the vast dark caverns. I’ll pull these heavy drapes aside so we can get underway.

This tour is intended to go beyond the immediate reaches of what we commonly think of as the underground economy: drug dealers, prostitutes, people working for under-the-table cash, illegal immigrants as day laborers, and the like. There is a less-disreputable, cleaner side to the world, and I’ll tell you all about it.

This cleaner, sunnier side of the underground economy may involve your friends, neighbors, even your own kid, and you may not have realized you even participated in the underground economy yourself a time or two.

The nicer side involves yard sale holders, babysitters, lawn mowing, firewood chopping and delivery, and other innocent and perfectly legal activities—without permits, a business setup, and all cash-paid. Ever sell one of your cars for cash, and didn’t report it as income? Guess what—you’ve participated without realizing it.

Now, right away, people are quick to judge participants in the underground economy as tax cheats without understanding the background and knowing the information that goes with the territory, such as the legal loophole that Congress has written into the tax code allowing a certain dollar amount of this activity to be conducted per year without incurring IRS penalties or notice. This loophole is meant to cover the odd Congresskid with a summer job who doesn’t really make enough in taxes to be a bother, but there’s nothing in the code that says the rest of us can’t join in the fun.

Knowing the rules and complying with them are what separate loophole divers from tax cheats.

But there are people and activities that can take you well beyond the IRS safety zone and these people pay a harsh price for their activities: they cannot deposit their money. Any money unearned and unaccountable cannot be placed in an account with a paper trail or other means of surveillance and verification. This means no bank accounts, brokerage accounts, retirement accounts, or even offshore accounts that are IRS- or Treasury-accessible. These people wind up walking around with wads of money in their pockets.

Another thing they cannot do with their money (so they don’t attract undue attention) is to put their money into overt assets such as large, pricey houses, fancy cars, boats, or other things that would belie their gains. As long as they exhibit a lifestyle that is conceivably within their reported income (from a job or business), they are beyond suspicion.

So how do our “nefarious” babysitters, lawn boys, yard sale holders, and firewood haulers spend their money that’s over and above the IRS-defined limit? As they receive it—in cash. The best places to “invest” the money are in food and thrift store clothing.

There is way more to the underground economy that I have written here, so I’ve included a reading list and an article link for your further perusal:
The "New" Economy? (article)
Cash-in-Hand Work
Ragnar's Guide to the Underground Economy
Under the Table and Into Your Your Pocket
How to Prosper in the Underground Economy
Deep Inside the Underground Economy
Top 10 List of Underground Economy Books

So why aren’t more of us taking part in this sometimes-legal activity? Fear of the IRS. Once you get to know their ground rules and operate within them, you have nothing to fear except bad perception from the uninformed.

I want to thank you for stopping by and participating in the Wenchypoo Underground Economy Tour. There are brochures (listed above) for you to take home with you, and do see us again. I hope I’ve been able to change some perceptions about the better side of the underground economy, and hope you have a nice day.


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